Balanced Budget Versus Golden Rule: On the Remediability of Fiscal Restrictions
Fiscal Rules Conference, 2001
Posted: 28 Jun 2012
Date Written: February 1, 2001
Abstract
The paper by Föttinger tackles the issue of proper budgetary rules and reporting requirements to ensure fiscal sustainability. The author points out that comparisons between alternative rules should be made with reference to their actual features, as determined by feasibility constraints, rather than to their theoretical properties. He argues that simple rules with modest informational requirements may be more effective in constraining opportunistic behaviour by politicians than more complex instruments with high informational requirements which would only deliver efficiency gains in a world without agency costs. Building on the correlation between the degree of transparency and the potential for creative accounting, Föttinger contrasts the potential merits of government balance sheets in increasing transparency about government net worth with the risks of using such accounts in the context of binding fiscal rules. He considers that the possibility of underinvestment determined by present EMU fiscal rules are not a convincing argument for the introduction of a “golden rule amendment” when compared with the high agency costs in terms of over-investment that such an amendment may entail. He argues that the benefits of accrual accounting in terms of transparency cannot be fully exploited because the primary source of national statistical offices accounting is still cash based. He notes that national accounts methodology was not developed with a view to control governments budgetary policy and finally supports the drafting of accounting standards specifically designed for the public sector.
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