My PhD. dissertation entitled: Essays on Fiscal Credibility: Institutions, Transparency, and Expectations is available from here or upon request. Below, some insights from it.

What is fiscal credibility?

When a government announces a fiscal plan, a deficit path, a debt target, a consolidation programme, the announcement only has bite if it is taken seriously by the people whose behaviour depends on it. A broadly accepted definition describes fiscal credibility as the extent to which economic agents expect a government to honour its fiscal commitments within a reasonable margin of error, even when shocks hit (End and Hong, 2022).

The difficulty is that credibility cannot be observed directly. The monetary-policy solution to this problem, delegating decisions to an independent central bank with a single clear mandate, does not transfer cleanly to fiscal policy, because budgets involve genuine political trade-offs (stabilisation, redistribution, the provision of public goods, long-run sustainability) that a democracy cannot simply hand over to unelected technocrats. That tension is what makes fiscal credibility a distinct and harder problem.

Because credibility is broad, my thesis breaks it into three dimensions, each capturing a different way a government's fiscal stance gets judged:

• Policy credibility: whether households and firms believe the government will follow through on its announced policy over time. This is an ex ante judgement about political willingness, and it is the dimension most exposed to the classic time-inconsistency problem.

• Forecast (informational) credibility: whether the government's official projections for growth, revenue, and spending are reliable rather than systematically over-optimistic. A government can be fully committed to its targets and still miss them if its underlying forecasts are flawed or strategically inflated.

• Market credibility: how international investors price sovereign risk, aggregating fundamentals, policy commitments, forecast quality, and institutional strength into the risk premia that determine a country's borrowing costs.

These dimensions are complementary rather than interchangeable. Accurate forecasts are worthless if the underlying policy is not believed; a credible policy built on unrealistic numbers will be missed anyway; and neither one lowers borrowing costs unless investors can actually observe and verify both commitment and competence.

Research question

The dissertation addresses one overarching question:

How does fiscal credibility influence the effectiveness of fiscal policy, and to what extent can institutions, through forecast oversight and transparency, strengthen that credibility?

Each of the three chapters takes on one dimension of credibility, moving from the behavioural foundations through the institutional levers and ending at sovereign borrowing costs.

Main results

Chapter 1: Fiscal multipliers, public debt anchor, and government credibility in a behavioural macroeconomic model (co-authored with Amélie Barbier-Gauchard and Thierry Betti, published in the European Journal of Political Economy)

I build a behavioural macroeconomic model in which agents do not have full rational expectations but switch between simple forecasting rules, "fundamentalists" who expect debt to return to its target and "chartists" who extrapolate recent trends, depending on which rule has been working. This generates endogenous waves of optimism and pessimism over the cycle. The central result is that fiscal multipliers are strongly state-dependent: a fiscal expansion has a large effect when agents are optimistic about future debt, but a much weaker, potentially even negative, effect during widespread pessimism, when households save in anticipation of future adjustments. Credibility shapes not only the size of the multiplier but also the volatility of public debt, so it matters for stabilisation and sustainability at the same time.

Chapter 2: Does oversight pay off? Independent fiscal institutions and forecast accuracy (co-authored with Carolina Ulloa-Suarez (IDB) and Oscar Valencia (IDB))

I assemble an original dataset of deviations between official government forecasts and actual outcomes for GDP growth, total revenue, and total expenditure, covering European Union and Latin American and Caribbean countries from 1998 to 2019. Using a modern difference-in-differences estimator designed to handle the staggered timing of reforms across countries, I find that implementing an Independent Fiscal Institution significantly improves the accuracy of short-term official forecasts and reduces the well-known optimism bias in government projections. The effect is larger where the institution has a broader mandate in 

Chapter 3: The price of openness: fiscal transparency and sovereign borrowing costs 

I construct an original Fiscal Transparency Index for 27 advanced and emerging economies over 2006–2023, adapting Geraats' (2002) framework for monetary-policy transparency to fiscal governance across five dimensions (political, economic, procedural, policy, and operational), and explicitly treating independent oversight as its own pillar. Combining panel fixed effects, instrumental-variable estimation, and local projections, I find that greater fiscal transparency is associated with significantly lower sovereign spreads. The effect differs by context: transparency mainly compresses long-term yields in advanced economies and short-term yields in emerging markets, consistent with their different investor horizons. Of the five dimensions, economic transparency, the quality and disclosure of data and forecasts, has the most robust effect, which closes the loop back to the forecast credibility studied in Chapter 2.

References:

End, M. N., & Hong, M. G. H. (2022). Trust what you hear: Policy communication, expectations, and fiscal credibility. International Monetary Fund.

Geraats, P. M. (2002). Central bank transparency. The economic journal, 112(483), F532-F565.