Fiscal Policy to Stabilise the Domestic Economy in the EMU: What Can We Learn from Monetary Policy?

An important issue for the EMU countries is to what extent fiscalpolicy can be used to stabilise the domestic economy in thecase of asymmetric macroeconomic shocks. The paper reviews possiblereforms of national fiscal policy institutions in order to promoteefficient fiscal stabilisation policy: (i) the introductionof a more transparent legal framework for the government's stabilisationdecisions; (ii) the establishment of an independent advisoryFiscal Policy Council; and (iii) the delegation of actual stabilisationdecisions to an independent Fiscal Policy Committee. The conclusionis that the Fiscal Policy Committee solution has much to speakfor itself. It seems possible to delegate fiscal stabilisationpolicy decisions, in much the same way as monetary policy hasbeen delegated to central banks, at the same time as fiscalpolicy decisions focusing on income distribution and socialefficiency are kept in the political sphere. Such delegationcan be made compatible with democratic accountability. (JELE61, E63, P16)