Fiscal Governance in Europe

Description

This book presents a theoretical framework to discuss how governments coordinate budgeting decisions. There are two modes of fiscal governance conducive to greater fiscal discipline, a mode of delegation and a mode of contracts. These modes contrast with a fiefdom form of governance, in which the decision-making process is decentralized. An important insight is that the effectiveness of a given form of fiscal governance depends crucially upon the underlying political system. Delegation functions well when there are few, or no, ideological differences among government parties, whereas contracts are effective when there are many such differences. Empirically, delegation and contract states perform better than fiefdom states if they match the underlying political system. Additional chapters consider why countries have the fiscal institutions that they do, fiscal governance in Central and Eastern Europe, and the role of such institutions in the European Union.

Mark Hallerberg is Professor of Public Management and Political Economy at the Hertie School of Governance. He also maintains an affiliation with the Political Science Department at Emory University, Atlanta, Georgia. He has published widely on fiscal governance, tax competition, exchange rate choice, and European politics. He has held academic positions previously at Emory University, the University of Pittsburgh, and the Georgia Institute of Technology. He has also served as a visiting scholar at the University of Amsterdam, University of Bonn, University of Mannheim, and the University of Munich (all in economics departments). He has done consulting work for the Dutch Ministry of Finance, Ernst and Young Poland, the European Central Bank, the International Monetary Fund, the Organisation for Economic Cooperation and Development, and the World Bank. Rolf Rainer Strauch is Adviser in the Directorate General Economics at the European Central Bank, Frankfurt, Germany. He previously worked at the Deutsche Bundesbank. He has been a consultant to the OECD, the European Commission, and the Dutch Ministry of Finance. He has also published widely in the area of public economics and European integration. Jurgen von Hagen is Professor of Economics at the University of Bonn, Germany. He previously taught at the University of Mannheim and at Indiana University, where he maintains an affiliation with the Kelley School of Business. Von Hagen is a Research Fellow of CEPR, London, and a member of the Academic Advisory Council of the Federal Minister of Economics and Technology in Germany and served as a member of the French Commite Economique de la Nation. He has been a consultant to the IMF, the World Bank, the Federal Reserve Board, the European Commission, the ECB, and numerous governments in Europe and beyond. Von Hagen has published widely in the areas of macroeconomics and public economics.

Reviews of the hardback: 'Over the past several years, Mark Hallerberg, Rolf Strauch and Jurgen von Hagen have made path breaking contributions on the way fiscal institutions shape budgetary behaviour and on the interplay between fiscal policy and politics in Europe. ... [This book] brings together and updates their theoretical and empirical research and provides new insights on fiscal governance in the European Union. As the financial crisis shakes the foundations of policy making in Europe and beyond, this book will help understand why countries' budgetary policies will react in different ways and how fiscal institutions may evolve as a response to new economic and policy challenges.' Marco Buti, Directorate-General for Economic and Financial Affairs, European Commission 'Once upon a time, people spoke of fiscal discipline and indiscipline in Europe. Now, instead, they think in terms of budgetary rules and institutions - a much less normative and more insightful approach. Hallerberg, Strauch and von Hagen are largely responsible for this shift. The present book, summarizing their arguments and evidence, is no less than a classic of the New Public Economics.' Barry Eichengreen, University of California, Berkeley 'A landmark contribution in advancing our understanding of the interactions of political and fiscal institutions and their impacts on fiscal and economic outcomes. In this seminal contribution, Hallerberg, Strauch and von Hagen demonstrate the critical importance of tailoring institutions of fiscal governance (rules, norms and institutions that guide budgetary decision making) to country-specific political environment - such adaptation determines whether political masters serve public interest or pursue heedless self-interest. The book would be an invaluable reference for all thinkers and doers interested in creating public institutions that advance accountable governance while facilitating economic growth with stability.' Anwar Shah, Lead Economist and Program Leader for Governance, World Bank Institute 'In Fiscal Governance in Europe, Hallerberg, Strauch, and von Hagen shed new light on how governments might successfully address the 'common resource pool problem' of debt restraint in the face of political incentives to maximize tax-financed constituency benefits. The answer is centralization of budget procedures through either 'delegation' or 'contracts' institutions. Yet, the authors show that the political context of centralized fiscal institutions is crucial. Where one-party governments prevail, delegation of authority to the finance minister is appropriate. In multiparty systems, the contracts approach of negotiated multi-year targets is the preferred form of centralization. When political context and institutions diverge, benefits from centralization decline. The authors draw on extensive data, including surveys of EU national policy makers, and expertly employ formal methods, econometric analysis and case studies to develop and assess their theory, and to draw compelling conclusions and recommendations for policy makers. Indeed, this excellent book can be strongly recommended to practitioners as well as scholars and advanced students in the areas of public finance and budgeting as well as of political economy, public policy, and comparative and European politics.' Duane Swank, Marquette University