What are independent fiscal institutions?

Independent fiscal institutions (IFIs) are defined as non-partisan public bodies, other than the central bank, government or parliament aimed at promoting sustainable public finances through various functions, including monitoring compliance with fiscal rules, production or endorsement of macroeconomic forecasts for the budget, and/or advising the government on fiscal policy matters. These institutions are primarily financed by public funds and are functionally independent vis-à-vis fiscal authorities. Courts of Auditors are included in this definition if their activities go beyond the accounting control and cover any of the tasks mentioned above. In the EU, the recently enhanced EU fiscal governance framework (through the Council Directive 2011/85 on requirements for national budgetary frameworks, the Fiscal Compact and the 'Two- Pack' Regulation 473/2013) broadened the role and formalised the tasks of national IFIs in an attempt to foster budgetary discipline and to increase national ownership of EU fiscal rules.

What are their benefits?

The emerging consensus of the economic literature postulates that the existence of 'fiscal watchdogs' is conducive to increased accountability and improved fiscal transparency by providing positive and/or normative analysis, assessments, and recommendations in the area of fiscal policy. In particular, fiscal institutions can produce or endorse macroeconomic forecasts for the budget preparation that do not suffer from the optimistic biases often found in official government forecasts; they may impartially monitor the implementation of budget plans and the respect of fiscal rules and budgetary objectives; they may raise awareness about short and long-term costs and benefits of budgetary measures both among policy-makers and the public, and finally they can assess whether fiscal measures are appropriate in terms of respect of rules, sustainability of public finances, and stability-oriented fiscal policies.

Database on fiscal institutions

The Commission services have compiled a broad set of information on national independent fiscal institutions in the EU countries through a comprehensive survey launched in 2006 across Member States. This survey compiled information related to the main characteristics of these domestic public bodies covering their mandates and functions, the composition of their governing boards, their formal status vis-à-vis government or parliament, and their media visibility and influence on public debates on fiscal policy. The last vintage of this database refers to 2013.

While initially covering a wide spectrum of IFIs, in recent years the database has increasingly focused on the so-called 'core IFIs', i.e. the IFIs endowed with a formal mandate derived from EU legislation, as well as a small number of 'non-core IFIs', i.e. institutions that carry-out IFI-specific tasks (analysis of fiscal policy developments, provision of macro forecasts, normative statements/recommendations in the area of fiscal policy) based on a mandate that is usually not driven by recent EU legislation.

As of 2015, as part of the new Fiscal Governance Database methodology, the Directorate General for Economic and Financial Affairs introduced a Scope Index of Fiscal Institutions (SIFI) that aims to measure the breadth of tasks discharged by IFIs. The SIFI index is calculated only for 'core IFIs', based on information reported by these institutions themselves. A typology defining six separate groupings of tasks constitute the SIFI index (the basis for this typology being described in Chapter II of the 2014 Report on Public Finances in EMU): (1) monitoring of compliance with fiscal rules; (2) macroeconomic forecasting; (3) budgetary forecasting and policy costing; (4) sustainability assessment; (5) promotion of fiscal transparency; and (6) normative recommendations on fiscal policy. The latest vintage of the SIFI index refers to the year 2017 (the first vintage refers to 2015).

The index offers a relevant image of the mandate of various institutions but should not be taken as a full proxy of their effectiveness.

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Note

(*) The definition of independent fiscal institutions has been used since 2006 for the purpose of selecting institutions present in the database and as a result it differs in certain respects from the definition of independent fiscal institutions that emerged from the new EU legal requirements gradually put in place since 2011.