The Volatility of the Flemish Medium-Term Budgetary Framework (2016). Reflets et Perspectives de la vie économique, 55(2), 87-104.

The Impact of Fiscal Rules on Public Finances in the Euro Area (2011). CESifo DICE Report Journal for Institutional Comparisons, 9(3), 18-25.

work in progress

Uncertainty and the Preferred Instrument for Fiscal Discipline Under Multitier Government

We often observe public borrowing constraints because they are effective measures in enforcing political commitment to fiscal discipline. In a federation, however, penalties are helpful in providing flexibility in fiscal adjustment. This chapter examines how this trade-off is affected by uncertainty. The model incorporates exogenous uncertainty, with respect to both the damages and savings of the public deficit. In addition, the model accommodates for externalities and asymmetric information as a result of a multitier government structure. Results indicate that strongly asymmetric uncertainty in regional budgetary policy makes a borrowing constraint undesirable. The latter is stressed as exceptionally disturbing as EMU member states are still considered to be asymmetric in their stochastics, while stressing borrowing constraints as the principal instrument for fiscal discipline. Uniformity moreover adds to the shortcomings of the fiscal rules in place. (.pdf)

Stochastic Characterisation of EMU Budget Discipline with Policy Uncertainty

With the recent debt crisis, the necessity of effective measures for safeguarding fiscal sustainability has become apparent, leading to an intense debate. Most of the debate focuses on restoring fiscal imbalances through strengthening fiscal rules. I address two issues impeding the success of these austerity measures: macroeconomic uncertainty and fiscal policy reaction. Specifically, I apply a structural VAR model to characterise the shocks to growth, inflation and interest rates. In combination with the estimation of fiscal reaction functions, this allows for the derivation of the distribution of fiscal realizations. More than previous studies, I model the volatility in fiscal policy. My results stress the importance of fiscal policy shocks relative to macroeconomic sources of uncertainty for the volatility in the debt evolution. This may impel the enforcement of stricter surveillance to hedge against disadvantageous outcomes. (.pdf) (Presentation)

The Conundrum of the Council: Who is to Tailor the Fiscal Straitjacket?

With the necessity of fiscal discipline comes the need for austerity measures. Whether to leave such technical decisions to an elected politician or an appointed fiscal council, is not only a matter of accountability. This chapter examines the importance of information for the institutional organization of fiscal responsibility. Specifically, I show that a more than advisory role for fiscal councils is often desirable, just because not only the information level of the institutions with respect to the optimal action matters. Specifically, a limited informedness of voters about the optimal fiscal policy results in politicians pandering to the public opinion. Consequently, if delegates have superior information, an appointed fiscal council is preferred. Only when voters are well-informed and delegates have weak office-holding motives, a representative democracy is preferred to set fiscal policy. Moreover, as the superior information of the delegates becomes more costly (i.e. the policy issue becomes more technical) pandering occurs more often, thereby making a fiscal council preferable more often. Finally, if only an advisory council is feasible, the funds attributed to such councils are found to be below the welfare optimizing level. Yet, an advisory council would increase welfare, either via better informed politicians or as a result of increased fiscal transparency. (.pdf)