One of the most important tasks of independent fiscal institutions (IFIs) is to assess and communicate fiscal risks.
Draft budget evaluations, long-term sustainability reports or costings of policy measures all contain valuable information about potential risks associated with the central (baseline) fiscal scenario.
By publishing a comprehensive Fiscal Space Review, independent fiscal institutions might be able to better “summarize” the current state of public finances and provide comprehensive measures of risks compared to some generally accepted definition of soundness, optimality or political acceptability. This paper discusses what should be included in such a review in order to provide clear signals to voters, policymakers and financial markets.
Keywords: fiscal risk, fiscal space, public sector balance sheet, fiscal limit, prudent debt level
JEL classification: H1, H6, H8