Fiscal Responsibility Framework in Croatia : Lessons from the Past, Rules for the Future

The Croatian Parliament enacted the Fiscal Responsibility Law (FRL) in November 2010. The law is designed to ensure long-term fiscal sustainability, fiscal discipline, and transparency, which have so far not been successfully enforced in previous l...

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Bibliographic Details
Main Author:	World Bank
Format:	Policy Note
Language:	English
Published:	Washington, DC 2013
Subjects:	ACCOUNTING ACCOUNTING STANDARDS AGGREGATE DEMAND AMORTIZATION BENEFICIARIES BORROWING BUDGET BALANCE BUDGET BALANCES BUDGET EXECUTION BUDGET LAW BUDGET PROCESS BUDGETARY FRAMEWORK BUDGETARY FRAMEWORKS BUDGETARY PRACTICE BUDGETARY PROCESS BUDGETING BUSINESS CYCLE BUSINESS CYCLES CAPITAL SPENDING COLLATERAL COMMON POOL PROBLEM CREDIBILITY CURRENCY CURRENCY CRISES DEBT DEBT RATIO DEBT SUSTAINABILITY DEFICIT BIAS DEFICIT TARGET DISCLOSURE OF INFORMATION DISCRETIONARY MEASURES ECONOMIC DEVELOPMENTS ECONOMIC RECOVERY ECONOMIC SHOCKS EMERGING MARKET EMERGING MARKET ECONOMIES ENFORCEMENT MECHANISM ENFORCEMENT MECHANISMS EQUALIZATION EXPENDITURE EXPENDITURE GROWTH EXPENDITURES FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MANAGEMENT FISCAL ADJUSTMENT FISCAL ASSUMPTIONS FISCAL AUTHORITIES FISCAL BALANCE FISCAL CONSOLIDATION FISCAL DEFICIT FISCAL DEFICIT REDUCTION FISCAL DEFICITS FISCAL DISCIPLINE FISCAL FRAMEWORK FISCAL IMPACT FISCAL INFORMATION FISCAL INSTITUTIONS FISCAL MANAGEMENT FISCAL PERFORMANCE FISCAL PLANS FISCAL POLICIES FISCAL POLICY FISCAL POLICY RULES FISCAL PROBLEMS FISCAL REPORTING FISCAL RESPONSIBILITY FISCAL RESPONSIBILITY FRAMEWORKS FISCAL RISKS FISCAL RULE FISCAL RULES FISCAL STANCE FISCAL STRATEGY FISCAL SUSTAINABILITY FISCAL TARGETS FISCAL TRANSPARENCY GOVERNMENT BALANCE GOVERNMENT BUDGET GOVERNMENT BUDGET DEFICIT GOVERNMENT DEBT GOVERNMENT DEFICIT GOVERNMENT EXPENDITURE GOVERNMENT EXPENDITURES GOVERNMENT REVENUES GOVERNMENT SPENDING INCOME TAX INFLATION INFORMATION SYSTEMS INSTRUMENT INTEREST PAYMENTS INTERNAL AUDIT INTERNATIONAL MONETARY FUND INVESTOR CONFIDENCE JUDGE LEVEL OF DEBT LONG-TERM DEBT MACROECONOMIC ENVIRONMENT MACROECONOMIC STABILITY MANDATES MEDIUM-TERM EXPENDITURE FRAMEWORKS MONETARY FUND MONETARY UNION MUNICIPALITIES NOMINAL DEFICIT PENALTY POLICY CREDIBILITY POLITICAL ECONOMY PRIMARY BALANCE PRIMARY DEFICIT PRIVATE SECTOR PUBLIC PUBLIC CONSUMPTION PUBLIC DEBT PUBLIC DEFICITS PUBLIC ENTERPRISES PUBLIC EXPENDITURE PUBLIC FINANCE PUBLIC FINANCES PUBLIC INVESTMENT PUBLIC SECTOR PUBLIC SECTOR ACCOUNTING PUBLIC SPENDING REAL GROWTH REPAYMENT RESTRICTIVE FISCAL POLICY STOCKS SUBNATIONAL GOVERNMENTS TAX TAX RATES TAX REVENUES TAXATION TRANSITION ECONOMIES TRANSPARENCY TRANSPARENCY CODE TREASURY WAGES
Online Access:	http://documents.worldbank.org/curated/en/2011/07/16406447/fiscal-responsibility-framework-croatia-lessons-past-rules-future http://hdl.handle.net/10986/12895

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Summary:	The Croatian Parliament enacted the Fiscal Responsibility Law (FRL) in November 2010. The law is designed to ensure long-term fiscal sustainability, fiscal discipline, and transparency, which have so far not been successfully enforced in previous legislation. The purpose of this note is to (i) review efforts to enhance fiscal management and stability in Croatia; (ii) present relevant international experience; and (iii) make recommendations for improving the FRL. The key recommendations stemming from the review of the law are the following: a) the temporary fiscal rule that the authorities plan first is appropriate. It calls for expenditure-based consolidation with clear annual spending reduction targets because revenue generation cannot be counted on to balance the budget over the medium term. The rule should be in place until the general government balance is reached because it would help reduce the debt-to-GDP ratio; b) setting up a legally and effectively independent authority to transparently monitor compliance with all elements of the fiscal responsibility framework, especially the fiscal rule, the three-year budget plan, and fiscal forecasts, is highly recommended; c) if the fiscal rule is to be effective, it should be supported by meaningful and enforceable sanctions; and d) also, the FRL should bind not only the current government and parliament but also future ones. Thus, as some other countries have done, the authorities could have considered enacting the FRL as an organic law with a two-thirds majority.

Fiscal Responsibility Framework in Croatia : Lessons from the Past, Rules for the Future

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