Fiscal resiliency in a deeply uncertain world: The role of semiautonomous discretion

Abstract

This Policy Brief argues that embracing the deep uncertainty about interest rates and other key parameters determining a country's fiscal position requires a new approach in fiscal policy. It proposes retaining fiscal discretion exercised after making the budget adjust more automatically and rapidly in areas where there is broad consensus that doing so is consistent with achieving broader societal goals. For such a semiautonomous discretionary fiscal architecture five elements are emphasized: stronger automatic stabilizers, a new infrastructure program, extension of debt maturities, indexation of long-term fiscal programs to their underlying drivers, and more emphasis on residual fiscal discretion. The goal is to provide a framework better adapted than our current budgetary structures to deep uncertainty, thus freeing up a discretionary fiscal policy to focus more on adjusting to the unanticipated.