Analysis shows central bank independence influences primary balance in 98 countries, implying institutional support may enhance fiscal sustainability.
We investigate the effect of central bank independence (CBI) on fiscal stance: the direct impact on the primary balance and the impact on the reaction of the primary balance to the public debt. We also analyze the role of institutions in the effects of CBI on fiscal policy. We estimate fiscal reaction functions augmented by a measure of CBI using a panel of 98 countries. We find that CBI lowers the primary balance but strengthens its reaction to the government debt, hence increasing long‐term fiscal sustainability. Other institutions, such as democracy, seem to strengthen the negative direct reaction of the primary balance to CBI.
No takes yet. Share an insight, caveat, or question.
Kokoszczyński et al. (2025) studied this question.
Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context: