Fiscal Constitutions

"Fiscal constitutions" is a buzzword. The internet search engines now report more than three hundred thousand hits for the term “fiscal constitution”, which indirectly establishes the popularity of the term. Although used frequently, particularly in the context of the recent sovereign debt crisis in the Eurozone, the notion of the fiscal constitution is rarely precisely defined. Since the concept of a fiscal constitution is at the core of this dissertation, it is both legitimate and desirable to start a “journey” into the fiscal constitution by defining this concept. Fiscal constitutions contain a country-specific set of laws, rules and regulations, which affect decision-making in the area of fiscal policy. Fiscal constitutions cover constitutional law as well as ordinary statutory law like basic fiscal and financial laws, rulings of the constitutional court, norms and cultural commitments. Fiscal constitutions determine the rules of the public finance “game”, thereby providing a framework for policy-makers and driving or discouraging certain policy patterns (Brennan and Buchanan, 1980, p. 5). By shaping incentives and limiting arbitrariness, the fiscal constitution can therefore determine the course of fiscal policy and fiscal outcomes (Diermeier and Krehbiel, 2003, p. 127).