Fiscal responsibility framework – International experience and implications for Hungary

Abstract

In many countries around world, discretionary fiscal policymaking has been beset by both time inconsistency and common pool problems. In democratic societies, fiscal performance may reflect not only the economic cycle but also the political cycle, as a result of dynamic inconsistency. The common pool problem is prevalent especially where decentralized fiscal entities, including lower-level governments, engage in free-rider behavior neglecting its adverse impact on the general government balance. Similarly, interest groups may exhibit such behavior through their representatives within collegial or coalition governments.