trends and future of sustainable development - TransEco

transfers, and social contributions in accordance with the suggestions of empirical results. The persistentand significant consolidation should be constituted under the consideration of the initial conditions.Further core factors of the potentially arising expansionary effect are the institutionalization of fiscalpolicy (i.e. the establishment of the rules-based fiscal framework), the structural reforms and theoptimistic expectations of the private sector on future incomes, as well.Easily reasonable that the innovative fiscal policy ought not to neglect the institutional settingseither. As soon as a country reached the fiscal sustainability, when the question of to what extent offlexibility would be needed for fiscal policy arises. This question is not irrelevant because the ageingpopulation, the depletion of natural resources per se call on more adaptive fiscal policy. Institutionsinvoked to serve the sustainable fiscal policy should be developed in terms of such values which arecompletely in accordance with the social and environmental conditions of the given economy.In an effort to meet the requirement of sustainability regarding the aspiration to loss-minimizing,the fiscal policy should resort to institutionalisations that dampen the risk of indebtedness even further.Hereby the ultimate objectives are on the one hand to capture the recognitions of political economics 1 ,on the other hand, to promote the acclimatisation of long term view spanning over government cycles, tofoster the credibility and last but not least the trust building. The latter one can be facilitated not only bythe introduction of rules-based fiscal policy (numerical fiscal rules and/or procedural rules) but also bypolitically independent and unbiased fiscal institutions (agencies, councils) complementing the rulesthat can often be extremely strict or lax. The mixture of rules and independent institutions can stimulatethe necessary flexibility, which is required for greater discretionary function, and fiscal transparency, aswell. 2 Nevertheless, since the deficit and debt levels can be regarded as social value orientations within ademocratic framework, policymakers should refrain from giving extended authority to the independentfiscal institutions (e.g. giving political and legal responsibility, as well). Accordingly, these independentinstitutions should be rather consulting than decision making bodies bearing also the opportunity toaddress how existing fiscal rules relate to “higher level” social and economic objectives.We argue that innovative fiscal policy should represent a fiscal responsibility framework whichincludes both the fiscal rules and the independent fiscal institutions. If for no other reason than becausethe innovative fiscal policy always requires capacity to intervene discretionary, especially in time of(global) shocks, in the favour of good fiscal performance. According to Kopits (2004), fiscal rules shouldcover the whole public sector with the stipulated requirement of surpluses in the structural balance. Inaddition, politically independent and unbiased fiscal institutions should be set up to credibly represent amore disciplinarian fiscal policy. Since independent fiscal bodies are often responsible for monitoringthe long term sustainability of public finance, they stand sentinel to provide analyses with due diligenceon short term fiscal latitude, thus it enhances the informant role of the state on sustainability byoffering better transparency.1Numerous political economics studies shed light on the short-term bias arising in case of parties during theelectoral competition, which is more likely to lead to Pareto-inferior states and political budgetary cycles. One of themost pertinent insights on this topic was written by Nordhaus (1975).2National fiscal institutions are independent bodies (e.g. councils), other than the central bank, tax office,government or parliament, that prepare macroeconomic forecasts for the budget, monitor fiscal performance and/oradvise the government on fiscal policy issues. Fiscal rules bring rigidity into the system and thus restrict theopportunities of distributional coalitions, whilst the independent fiscal body is to bring the necessary flexibility intothe system at the same time.278