Wren-Lewis writes that the Commission was right to propose the changes to the way it calculates structural deficits, but wrong to cave in on the issue.
The Commission will go on making estimates that it knows are overestimating structural budget deficits, because of 'concern in some capitals' about the implications of using better estimates! None of this does the Commission any good in terms of its competence to help determine national fiscal policy. (Of course nothing can top the incompetence recently shown by the US congress, but that is no excuse.)
Luckily there is an obviously better way to proceed, even within the confines of the deeply flawed Fiscal Compact. Many eurozone countries already have their own ‘fiscal councils’: independent bodies set up to provide scrutiny of national fiscal policy. It should be central to the mission of these bodies to estimate the output gap and structural deficit, as it is impossible to look at fiscal sustainability without doing so. So why not get estimates of the output gap from these institutions who will be able to take into account country specific factors, and use the academic expertise that exists in those countries to maximum effect. (Spain and Ireland are hardly short of good macroeconomists.) Unlike the governments of those countries, fiscal councils should not be prone to bias in producing these estimates.
The Commission can play a coordinating role, getting experts from the national fiscal councils together to share ideas and expertise. This seems to me a clearly better way to proceed, unless of course your goal is to maximise the influence of the Commission.
Full article
© Simon Wren-Lewis
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article