Fiscal institutions: different classifications and their effectiveness

Fiscal institutions have been increasingly recognized as being useful for improving fiscal performance. These institutions are defined in different ways, but when a narrower definition is used, they correspond to independent fiscal institutions (IFIs), also called fiscal councils. In this paper, we employ three different classifications of fiscal institutions: from the European Commission, the International Monetary Fund, and one adapted from Calmfors and Wren-Lewis. Our main aim is to assess the impact of fiscal institutions on fiscal performance within a panel composed of the 28 countries of the European Union during the period of 1999-2016, using the bias-corrected least squares dummy variable dynamic panel estimator. We also explore the complementarity between fiscal institutions and the other elements of fiscal governance: numerical fiscal rules, medium-term budgetary frameworks, and the Stability and Growth Pact deficit and debt rules. The results confirm that fiscal institutions improve the discretionary implementation of fiscal policy: policy measures are less procyclical and more concerned with the sustainability of public debt. We also conclude that there is a complementary relationship between IFIs and the Stability and Growth Pact deficit rule, and that the performance of discretionary fiscal policy seems higher in countries with fiscal institutions than in countries with a predisposition for fiscal prudence.