Blog Post

How visible are independent fiscal institutions in public debate?

Independent fiscal institutions have no formal powers to act and have to rely on soft power to influence the budgetary process. This blog post investigates how they exercise this soft power by enhancing public scrutiny of fiscal policies.

By: and Date: April 3, 2019 Topic: European Macroeconomics & Governance

In the aftermath of the crisis, new EU legislation[1] was introduced requiring member states to put in place independent bodies in charge of monitoring compliance with fiscal rules at the member-state level (to increase ownership). These bodies should also assess government forecasts used in budgetary plans in order to improve their quality (or at least to avoid overly optimistic forecasts), with the ultimate goal to improve fiscal policies in Europe.

However, most of these institutions have, in practice, no formal powers to act if they consider national fiscal policies inappropriate. That’s why they can only rely on soft power to influence the budgetary process. This blog post investigates how independent fiscal institutions (IFIs) exercise this soft power by enhancing public scrutiny of fiscal policies.

Soft power rests on two main pillars: credibility and communication. Credibility of such institutions can be established through recognised expertise, quality of analysis, independence from governments and political neutrality. But, in the end, high credibility does not matter much without effective communication to increase the political costs for governments not complying with their recommendations. This communication can take a variety of forms: press conferences, publication of reports, hearings with members of parliaments, and interaction with the press – all of which will be reported in the media.

That is why an admittedly crude way to assess their influence on the fiscal debate is to check how IFIs are covered in their national media[2]. Actually, ‘media coverage’ is already considered in the IFI databases of the IMF and of the European Commission, but only in a binary form in the former and in the form of a 1-3 scale in the latter (based on a survey).

The idea here is to dig deeper and to build a comprehensive database of media mentions of the IFIs of EU member states, in order to quantify more precisely their influence in the national public debate and track the evolution of this coverage since 2012 (when many of them were created after legislation was introduced at the EU level). To do this, the number of mentions of each independent fiscal institution in the most influential national media[3] of their country is counted from January 2012 to February 2019 using the Factiva news database.

The data gathered confirms wide disparities between European IFIs, in that regard. First, as Figure 1 shows, the average number of quotes per year (from 2012-2018) is very scattered: it goes from three for Malta’s Fiscal Advisory Council, to 6,142 for the UK’s Office for Budget Responsibility (OBR). Overall, in our 18 country-sample[4], the median average number of quotes over that period is 162 per year. The highest average in the euro area during that period goes to Spain’s Autoridad Independiente de Responsabilidad Fiscal (AIREF) which, despite its youth, reached 3,459 mentions per year, while the Netherlands’ Centraal Planbureau (CPB), created in 1945, was mentioned 1,694 times per year on average during the same period.

Second, trends also differ significantly across countries. As can be seen in Figure 2, the media coverage of Spain’s AIREF has quickly increased since its creation in 2012, and now outperforms the older CPB and OBR. To a lesser extent, an increasing trend in mentions is also visible for Italy’s Ufficio Parlamentare di Bilancio (UPB). On the contrary, the media coverage of, for instance, France’s Haut Conseil des Finances Publiques (HCFP) is not only at a relatively low level compared to countries of similar size, but has also been declining in recent years.

Third, when looking at monthly mentions, media coverage for some IFIs exhibits some seasonal patterns or significant peaks. The examples of Spain’s and Italy’s IFIs (which were created at approximately the same time) are particularly interesting in that regard, as they seem to have adopted two different strategies: while the UPB seems to be more reactive to government decision-making, AIREF seems more proactive.

As can be seen in Figure 3, the Italian UPB’s mentions tend to peak between September and November every year, when draft budgets are discussed in the Italian parliament. This was particularly prevalent in 2018, when the Italian government and the European Commission argued about the compliance of the budget with the rules and about the quality of the government’s forecasts used in the budget.

The Spanish AIREF’s number of mentions also exhibits significant volatility. However, the peaks are not related to draft budgets but to the sporadic publication of reports by AIREF on specific issues that could matter for the sustainability of the public debt in Spain in the long run, such as the budgets of autonomous regions or of the social security system.

Despite these noteworthy observations, I would urge caution about drawing quick conclusions on the relative merits of European IFIs based on these numbers. First, a low number of media mentions might not mean necessarily that IFI are ineffective or incompetent; it could also mean that a particular IFI did not need to raise the alarm bell yet, because the fiscal situation is in better shape than in other countries.

Second, an effective communication strategy for IFIs might not be as simple as maximising the number of quotes in the media. As noted also by Xavier Debrun, independent fiscal institutions should not necessarily talk all the time and on every topic. Such a cacophonic communication could decrease the signal-to-noise ratio, which could reduce the effectiveness of the IFI’s communication and, in the end, their influence on fiscal policies.

Looking again at the different strategies followed by the UPB and AIREF, it is difficult at this stage to judge which strategy is more effective. AIREF appears to have been quite successful at making a name for itself in the media as the independent watchdog scrutinising public finances in Spain. However, being too present in the media or very alarmist about debt sustainability all the time could also backfire at some point, if a government tries to pass a budget that really endangers public finances and if the media or the general public cannot distinguish this particular call from the usual warnings of the IFI.

To conclude, I believe that, given their lack of a direct policy lever, IFIs absolutely need to be present in the public debate to be relevant – but they also need to be timely and pertinent (as was the Italian UPB at the end of 2018, when it rightly highlighted the over-optimism of the government’s forecasts and the discrepancy with other international institutions’ forecasts that were revised negatively at the time). The European Fiscal Advisory Board and other initiatives such as the network of EU independent fiscal institutions should thus play an important role, by encouraging the sharing of best practices between European IFIs in terms of communication strategies to help them maximise their impact in the public debate, with a view to improving fiscal policies at the national level.

The author would like to thank Akira Soto and Jan Mazza for their help in constructing the media coverage database.

[1] EU Directive 2011/85, EU Regulation 1466/97, EU Regulation 473/2013 and the Fiscal Compact

[2] There have been some early attempts (for instance by Beetsma et al., 2018) to measure the impact of independent fiscal institutions on forecast quality and on rule compliance using econometric methods. However, as the authors themselves acknowledge, their results must be interpreted with caution for the moment, given the relative novelty of these bodies and their institutional heterogeneity across countries.

[3] See the list of the 3832 media covered in our analysis attached here.

[4] Because of the insufficient coverage of national media in the Factiva database, the following countries are not included in the database: Bulgaria, Croatia, Cyprus, Czechia, Estonia, Greece, Latvia, Lithuania, Romania and Slovenia.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More on this topic More by this author
 

Blog Post

The great infodemic: time to consider a fake news tax

A content-based tax on the revenue from digital advertising is needed to prevent the monetisation of fake news by both creators and platforms.

By: Georgios Petropoulos Topic: Innovation & Competition Policy Date: August 26, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

What should public spending look like?

What should we do about the increase in public spending due to COVID-19? Bruegel Director Guntram Wolff and Former Deputy Secretary-General of OECD Ludger Schuknecht discuss.

By: The Sound of Economics Topic: Global Economics & Governance Date: July 14, 2021
Read article More on this topic More by this author
 

Opinion

Is Bidenomics more than catch-up?

The Biden administration's promises to 'think big' and rebuild the country seem like a major historical departure from decades of policy orthodoxy.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: June 3, 2021
Read article More on this topic More by this author
 

Blog Post

International tax debate moves from digital focus to global minimum

International corporate tax reform is coming closer if countries can set aside their differences and work for progress rather than the perfect deal.

By: Rebecca Christie Topic: Global Economics & Governance Date: May 27, 2021
Read article More on this topic More by this author
 

Opinion

Europe must fix its fiscal rules

The pandemic has shown that the EU’s spending framework reflects an outdated economic orthodoxy.

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: May 27, 2021
Read about event More on this topic
 

Past Event

Past Event

After COVID-19: a most wanted recovery

This event, jointly organised with ISPI, as the National Coordinator and Chair of the T20 Italy, is part of the T20 Spring Roundtables and it will focus on strategies for a swift and sustainable economic recovery for Europe.

Speakers: Franco Bruni, Maria Demertzis, Elena Flores, Paul De Grauwe, Christian Odendahl, Miguel Otero-Iglesias and André Sapir Topic: European Macroeconomics & Governance Date: May 19, 2021
Read article More on this topic
 

Blog Post

Do citizens care about Europe? More than they used to

The level of interest of European citizens in the European Union is increasing, but still lags behind EU economic and policy integration.

By: Enrico Bergamini, Emmanuel Mourlon-Druol, Francesco Papadia and Giuseppe Porcaro Topic: European Macroeconomics & Governance Date: April 26, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

The idea of Europe: more than a feeling?

What can 70 years of news(paper articles) and how we talk about 'Europe' tell us about pan-European identity? Is there even such a thing as a European public sphere?

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: April 16, 2021
Read article Download PDF More on this topic
 

Working Paper

Interest in European matters: a glass three-quarters full?

Everything that increases the interest of European citizens in the EU, independently of whether it has a critical or a supportive character, will serve to move the EU closer to its citizens.

By: Francesco Papadia, Enrico Bergamini, Emmanuel Mourlon-Druol and Giuseppe Porcaro Topic: European Macroeconomics & Governance Date: March 23, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Macroeconomic outlook: are we back on track?

Summary of the macro outlook based on Commission forecasts and analysis of the global picture.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: March 5, 2021
Read article Download PDF More on this topic
 

Working Paper

Talking about Europe: exploring 70 years of news archives

This paper aims to contribute to the understanding of Europe as reflected in European media.

By: Enrico Bergamini and Emmanuel Mourlon-Druol Topic: European Macroeconomics & Governance Date: March 2, 2021
Read article More on this topic More by this author
 

Opinion

A K-shaped recovery and the role of fiscal policy

The spine of the letter represents the fall in activity at the start of the pandemic. Then there is a split, which leads to the two ‘arms’ that capture the different directions taken by economic activity in different sectors.

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: March 2, 2021
Load more posts