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Fiscal councils’ impact on promoting transparency and accountability in public finance management



Sanja Bach*
Preliminary communication   |   Year:  2020   |   Pages:  355 - 384   |   Volume:  44   |   Issue:  3
Received:  October 19, 2018   |   Accepted:  April 4, 2020   |   Published online:  September 1, 2020
Download citation        https://doi.org/10.3326/pse.44.3.4       


 

Abstract


This paper addresses two main questions: (1) how far do the activities of fiscal councils in the EU countries help promote transparency and accountability in the management of public finances and (2) how could fiscal councils enhance the impact of those activities? The analysis is based on a questionnaire collected in 2016 from fiscal councils in 18 EU countries. The questionnaire looked at how the councils themselves assessed their impact on the management of public finances, and how they communicated their findings to the wider public. The councils see some benefits of their work; and their monitoring of adherence to fiscal rules and legislative regulation, as well as their warnings about excessive government spending, seem to get noticed in the media. This activity informs the public, and may in turn influence politicians’ ratings, thereby helping to contribute to greater accountability in the management of public finances. The paper consequently argues that fiscal councils may promote fiscal transparency and accountability and proposes several ways to enhance the effectiveness of their influence on media.

Keywords:  fiscal councils; fiscal transparency; fiscal accountability; fiscal policy communication; media influence

JEL:  E62, G28, H60


1 Introduction


This paper studies how fiscal councils in selected EU countries influence fiscal transparency and the accountability of politicians for the management of public finances. The question of whether fiscal councils can increase the visibility of compliance with fiscal rules through active communication with the public is important for several reasons. Media, especially digital media, can provide information that has bearing on the political ratings of the individuals and organisations in charge of managing public finances in more or less real time. Owing to competition among media outlets, that information is likely to affect the reputation of politicians responsible for government budgets.1

Fiscal councils are independent public institutions whose broad goal is to promote sustainable public finances. They have a mandate to assess fiscal plans, evaluate macroeconomic or budgetary forecasts of fiscal authorities, and make other analyses that may contribute to the public debate on fiscal policy and fiscal transparency (Calmfors and Wren-Lewis, 2010; IMF, 2013). To build their credibility, fiscal councils seek to establish a track record of solid analysis and effective public announcements.2 Based on information about government activities, voters and financial markets are better able to assess government’s fiscal position, present and future costs and benefits of various tax and expenditure proposals, and the longer-term consequences of fiscal policy on the economy and the society (Kopits and Craig, 1988). This can in principle enhance fiscal accountability, i.e. provide incentives for politicians in the executive branch to act more responsibly and face the consequences of poor decisions (OECD, 2002). 

This paper uses findings from a questionnaire collected from eighteen fiscal councils in EU countries. The main research question is whether more effective communications of fiscal councils with the public helped to improve fiscal transparency and accountability. The paper finds some limited evidence to support this view.

The next sections will briefly review the literature, presents the data and research methodology, discuss the results and develop arguments for the importance of councils’ improved communications with the public.



2 Related literature


This paper draws on the rich political economy literature studying the activities of fiscal councils (Schuknecht, 2004; Calmfors and Wren-Lewis, 2010; Wyplosz, 2012; 2015; Debrun et al., 2013; Schick, 2010; 2013). One of the recurring themes is that fiscal councils can improve democratic accountability and discourage opportunistic shifts in fiscal policy, such as pre-electoral spending sprees, by fostering transparency over the political cycle. Through independent analysis, assessments and forecasts, such bodies can raise public awareness about the consequences of certain policy paths, and thereby contribute to a culture of stability in public finances. Fiscal councils can thus raise the reputational and electoral costs of unsound policies and broken commitments. They can also provide valuable direct input in the budget process, such as independent forecasts or assessments of structural fiscal positions, thereby closing technical loopholes that allow governments to circumvent numerical fiscal rules (Debrun et al., 2013, 7-8).

Another recurring theme is that fiscal councils help enhance the transparency and accountability of public finances. By publicly commenting on fiscal policy and analysing government budgets, fiscal councils are prima facie instruments of fiscal transparency. Moreover, given the right conditions, they can generate a positive feedback loop for fiscal transparency: a wider public, better educated in fiscal policy, will demand more and better information on government budgets from public officials. The officials will likely oblige and provide such information for the sake of their own reputation; the councils will process and disseminate it; the public will evaluate their analysis, and so on. In Sweden, for instance, the fiscal council has an explicit mandate to assess the transparency of budget documents.

The more the councils are present in the media, the more they are likely to affect the fiscal policy public debate and be perceived as independent. This paper focuses on fiscal councils’ media influence as a potential instrument for increasing the transparency and accountability of public finances. Although the councils may well be uniquely positioned to promote fiscal transparency and accountability, how far do they really achieve this goal in practice?



3 Data and methodology


Data for this study were collected from a questionnaire designed by the author and filled out by representatives of fiscal councils in 18 EU countries. The full questionnaire is shown in the Appendix and the councils that responded are listed in Table A1. The overall response rate was 72% (18 out of 25 fiscal councils). Responses from the fiscal councils in Croatia, Hungary, Ireland, the Netherlands, Sweden and the United Kingdom were selected for more in-depth study, and were supplemented with analysis of research papers and reports on their operation.

The questionnaire was designed and processed as anonymous in order to obtain a higher response rate and assure respondents of the confidentiality of their responses.

Table 1
Number and percent of answers to individual questions in the questionnaire (N = 18)
DISPLAY Table



4 Results


Graph 1 shows a comparison of the distribution of ratings for the question of howfiscal councils influence transparency and the accountability of politicians for the management of public finances. The results show that four out of 14 councils evaluate “public information disclosure” as the best way to influence the transparency and accountability of politicians in managing public finances. This was followed by “communication through the media” and “promotion of transparency and accountability”. Two councils each highlighted “public disclosure of analysis, evaluation and reports” and “promoting good practice through transparency in the work of fiscal council”.

Graph 1
Frequency of different answers to the question “How do fiscal rules and fiscal councils affect transparency and accountability of politicians for the management of public finances?”
DISPLAY Graph

Graph 2 shows the frequency of answers to questions on the impact of fiscal councils, as assessed by respondents working for the councils. Not surprisingly, the majority of respondents, nine out of 15, evaluated the impact of councils on the state of public finances and fiscal transparency as “good”. Five respondents evaluated the impact of their councils as “sufficient”, two as “very good”, and one as “insufficient”.

Graph 2
Frequency of different answers to the question “What is the impact of your fiscal council on public information on the state of public finances, and on fiscal transparency and accountability of politicians in the budget process?”
DISPLAY Graph

Responses (not shown here) to related questions suggested a widespread lack of citizen awareness of the councils’ existence and activities; the relatively high effectiveness of communication through the media; also, the more widespread use of disclosure of information on councils’ websites rather than in the media.

Regarding channels of communication, all fiscal councils provided information on their websites (Table 2). Many also used press releases, interviews, press conferences, presence in social media groups, and briefings. Only one council (in Latvia) developed a communication strategy fully in line with OECD recommendations.3

Table 2
Channels of communication with the public
DISPLAY Table

Answers to Question 3 on the timing of councils’ communications (Table A2) suggest that this is most intense for major fiscal events (for 12 out of 18 councils) and disclosure of information on compliance/non-compliance with fiscal rules (10 councils). The councils most often give warnings about the state of public finances (Table A3) in the event of there being a discrepancy between the proposed budget and the outlined objectives, as well as in case of overoptimistic forecasts (9 councils each).

Media reports on fiscal councils’ communications (Table A4) mostly address analyses, assessments and reports of the councils (as reported by 15 councils); councils’ criticism of government fiscal policy (9 cases); their reports on trends in deficits and public debts (8 cases); and their assessments of fiscal transparency and accountability in the budget process (5 cases). One can detect a difference in councils’ assessment as between what they communicate and what the media report (Table 3). The media mostly cover analyses, evaluation and reports; criticisms of government fiscal policy and changes in deficits and public debt; and issues in transparency and accountability in the budget process or in councils’ activity.

Table 3
Media coverage of most common topics communicated by councils
DISPLAY Table

Somewhat surprising were answers to Question 5, on the media that issue the largest number of releases on the work of councils. Print media were highlighted by 16 out of 17 councils, while only five noted the digital media. Given the growing influence and importance of digital media, fiscal councils were expected to redirect communication to these media in the future.

Only four councils use international media to send messages about the government’s fiscal policy to the world public (Question 7). This is surprising given that international news agencies tend to affect financial markets and “penalize the countries that violate fiscal rules” (Eyraud and Wu, 2015). Seven councils do not use international media, and seven consider it sufficient that the foreign media themselves transmit information published on councils’ websites, at press conferences, through social media or foreign correspondents. For example, the Irish IFAC sends reports for publication to the Network of European Council (EUFI) website.

Information on compliance with fiscal rules is publicly available on all councils’ web pages (Table 4). Most councils present reports on compliance with fiscal rules through press releases and presentations in parliament (12 each), half present reports at press conferences, and fewer than half at briefings with journalists.

Table 4
Is monitoring of the compliance with fiscal rules publicly available?
DISPLAY Table

Fewer than half of the councils surveyed rate the visibility of published information they provide as adequate, i.e. transmitted or published by all major media, followed by a public debate. In Sweden, for example, the annual report draws a lot of attention from newspapers and television. Newspaper articles and editorials comment on the report, and representatives refer to it in parliamentary debates. Eight councils also replied that all the mainstream media transmitted or published information on compliance with the rules, but this was not followed by public discussion. The Dutch council judges that the occasional visibility of CPB dana allows assessment of compliance with the rules, but most of the time more attention is paid to deficit forecasts, as assessments of compliance with the rules are carried out by another agency, the National Council.4

Regarding the media visibility of councils’ assessments of fiscal rules (Question 11) just over half (9 out of 17) of the councils replied that information on noncompliance was transmitted by all major media and followed by public debate. In almost a third of the cases, mainstream media did transmit the information, but there was no public debate. For instance, councils in France and Romania reported that information on non-compliance was published in the media very seldom or never. Unsurprisingly, media reported more often on non-compliance than on compliance with the rules. This probably reflects the well-known media market strategy to provide readers with the negative news and criticism of government policies that they find more attractive. Furthermore, more than half of the councils (9 out of 17) stated that the government felt obliged to explain the reasons for the non-compliance identified by fiscal councils; more a than third (7 out of 17) replied that the government did not respond publicly (Question 12).

Governments mostly responded to critical views of fiscal policy by respecting criticism and becoming more transparent (6 out of 17 councils), and by explaining the state of fiscal policy (Question 15). Almost half of the councils (6 out of 13) indicated that citizens did not react publicly even though they were mostly aware of the lack of transparency and accountability in the budget process (Question 21). Very few councils responded that the public was responsive to discussions and pressed for transparency and accountability. Very few also responded that they felt the public lacked knowledge and interest in public finances (2 out of 13 councils). This indicates that the councils do have an influence on the government through the media, and that the public does have an influence on the government, but not to the extent expected in the policy literature. The public generally hardly reacts to information about the lack of fiscal transparency and accountability.

How could fiscal councils increase their impact on transparency and accountability in the future? Answers summarised in Table 5 suggest a few good practices: increasing the number of public debates on fiscal policy in the media (9 out of 18 councils); strengthening their powers through adjustments in national legislation (7 out of 18); and communicating more efficiently with the public (6 out of 18). The questionnaire further indicated that for the vast majority of councils, communication with the public and public information were not regulated by law (see Table A5). The majority of councils did not view staffing problems as a major obstacle to increasing its influence (Table A6). 

A good starting point was that councils reported motivation of employees: 17 out of 18 councils saw good prospects for increasing their influence in the future.

Table 5
How can the impact of councils on fiscal transparency and accountability in the budget process be increased?
DISPLAY Table

A closer look at fiscal councils in Croatia, Hungary, Ireland, the Netherlands, Sweden and UK provides additional insights. These councils seem to be aware of the importance of communication with the media for their role of “fiscal guardians”.

In Ireland, the Netherlands Sweden and the UK communication with the public takes place in many different ways. By contrast, in Hungary it takes place only through a website and media interviews, and in Croatia only through a website.

The Dutch council plans to improve its communication strategy by increasing activities in social media. Most council publications are reviewed in the print and electronic media.

These six councils mostly publish information on compliance with the rules on their websites through press releases, and by making presentations in parliament. Most active in terms of communication are the councils in Sweden and the UK. Respondents from the councils noted that information on compliance was transmitted by all important media, and was followed by public discussions, notably in Ireland, Sweden and the UK. In Croatia and Hungary, there was less public discussion of councils’ findings.

Governments in these countries generally responded to the councils’ findings on non-compliance with fiscal rules. In Sweden, the government was required to respond before passing another budget. In the UK, the government had to announce whether it had taken corrective measures. The Swedish council assessed fiscal transparency both as part of its regular duties and in its annual report. Governments in these countries appreciated councils’ work. In Sweden, the government regularly explained the reasons for the situation in response to the council’s criticism. In the UK, the council presented information for others to judge and did not openly express critical views.

Most of these six councils believed that preparing public reports that influence media reporting had the greatest impact on fiscal transparency (Table A7). All six councils assessed their impact on public information and on increasing fiscal transparency and accountability as good. Councils in the Netherlands and the UK pointed out that they generally worked with a high level of transparency. Public reactions to information that councils provide to the media vary across countries. In Croatia, these responses show up in a large number of follow-up reactions in the media; in Hungary, in public hearings and media pressure; in Ireland, in critical press reports; and in Sweden, in strong public support for fiscal discipline and the potentially high cost of financial irresponsibility.



5 Conclusion


This paper presents the findings from a questionnaire on media communication practices of fiscal councils in EU countries as a potential tool for increasing the transparency and accountability of public finances. Their mandate is to increase the visibility of compliance with fiscal rules through active communication with the public. More effective communication should in theory help improve fiscal transparency by making politicians accountable to the public for their management of public finances. The purpose of the questionnaire was to assess to what extent this has been the case in practice. The findings show the following:

The best practices for fiscal councils to influence accountability of politicians in managing public finances seem to be public disclosure of information about compliance with fiscal rules, frequent communication with the media, promotion of transparency and accountability, publication of analyses, evaluations and reports, and, last but not least, open and transparent work by fiscal councils themselves.

Most fiscal councils assess the influence of their own work on the state of public finances and fiscal transparency as good. They find that they exert influence on the government and the public through the media, but not to the extent they would like. This is reflected, for instance, in the weak public reaction to councils’ findings on the lack of fiscal transparency, and suggests that the councils need to put more effort into their media communication strategies. One obvious choice would be to make more intensive use of the digital media, as their influence is growing relative to traditional outlets like print.

Their influence could also be enhanced by increasing the number of public debates on fiscal policy in the media. Some councils would also benefit from stronger anchoring of their powers in national legislation, as recommended by the OECD.

In sum, this paper provides some tentative evidence that fiscal councils in EU countries are able to help promote fiscal transparency and accountability. The councils themselves see some benefits of their work, and their monitoring of adherence to fiscal rules and warnings about excessive government spending noticed in the media. This informs the public, and may in turn influence politicians’ ratings, thereby helping contribute to greater accountability in the management of public finances.



Appendix


Questionnaire
Questionnaire
DISPLAY Questionnaire
Table A1
EU fiscal councils that responded to the questionnaire
DISPLAY Table
Table A2
When does your fiscal council usually communicate with the public?
DISPLAY Table
Table A3
When does your fiscal council especially give warnings about the state of public finances?
DISPLAY Table
Table A4
Which topics do media reports address?
DISPLAY Table
Table A5
The legal determination of the councils’ communication with the public
DISPLAY Table
Table A6
What are the obstacles to increasing the impact of your council on fiscal transparency and accountability in the budget process?
DISPLAY Table
Table A7
Comparison of six EU fiscal councils’ impact on transparency and accountability
DISPLAY Table



Notes


* The author would like to thank three anonymous referees whose comments and advice greatly improved the quality of the paper, as well as members of eighteen fiscal councils in the EU countries who provided answers to the questionnaire.

1 “Fiscal councils do not directly affect fiscal policy, their influence hinges importantly on the reputational and electoral impact of their analyses on fiscal policymakers” (Debrun et al., 2013:52).

2 Transparency refers to the publication of relevant, accessible, timely and accurate information on activities, rules, plans and processes in the budget process (IMF, 2014; 2016; 2019; OECD, 2002; 2013).

3 The OECD principles for Independent Fiscal Institutions (IFIs) state that “IFIs should develop effective communication channels from the outset, especially with the media, civil society, and other stakeholders”. (see OECD, 2020).

4 More: www.raadvanstate.nl/the-council-of-state. At the time of the survey the CPB was listed in the EU Inde¬pendent fiscal institutions database. Today, both CPB and National Councils (which is active since 2014) are members of the network of the EU Independent Fiscal Institutions (EUIFIS).


Disclosure statement


No potential conflict of interest was reported by the author.

References


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