Israel: Selected Issues
Author: International Monetary Fund
Publication Date:
23 Jan 2007
eISBN:
9781451819632
Language:
English
Keywords:
ISCR; CR; Israel; fund; regulatory authority; rule; majority margin; political economy; coalition agreement; finance minister; government policy; Fiscal stance
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This Selected Issues paper on Israel focuses on the fiscal institutions and the political economy in Israel. The paper addresses two questions. First, is there evidence for political-economy distortions to Israel’s fiscal policy? Second, what institutional changes could help in limiting these distortions? The paper presents some data on Israel’s political system and an empirical analysis of the relation between fiscal policy and the political infrastructure. It also presents some options for reducing political economy distortions through reforms in the budget process and institutions.

Abstract

This Selected Issues paper on Israel focuses on the fiscal institutions and the political economy in Israel. The paper addresses two questions. First, is there evidence for political-economy distortions to Israel’s fiscal policy? Second, what institutional changes could help in limiting these distortions? The paper presents some data on Israel’s political system and an empirical analysis of the relation between fiscal policy and the political infrastructure. It also presents some options for reducing political economy distortions through reforms in the budget process and institutions.

I. Fiscal Institutions and The Political Economy in Israel1

A. Introduction

1. Israel’s fiscal performance improved considerably following the stabilization program of 1985, but the public debt remains a concern. Fiscal deficits have been persistent and sizable over the last two decades and the public debt is high by international standards. Moreover, successive attempts to contain deficits and bind fiscal outcomes on a multiyear basis have met with limited success.

2. The main institutional mechanism to control fiscal outcomes, the Deficit Reduction Law (DRL), lacks credibility and stability. Its credibility has suffered because fiscal targets set under the DRL have been missed repeatedly. Initial targets have been missed in 9 out of 14 years since the enactment of the law in 1991.2 The stability of the DRL has been disrupted by repeated amendments, including as of late. But it has also been buttressed by the adoption of an expenditure growth ceiling, although this has already been modified several times.

3. These developments suggest that Israel is struggling to achieve time-consistent fiscal policies. Accordingly, this paper addresses two questions. First, is there evidence for political-economy distortions to Israel’s fiscal policy? Second, what institutional changes could help in limiting these distortions? The 1992 reform of electoral laws and ongoing debates suggest that the reform of the political infrastructure continues to pre-occupy policymakers.3 However, reform of the political system is not what this paper is about and the results should thus not be interpreted as advocating changes to the political infrastructure. In fact, all political systems—presidential or parliamentarian—have struggled with political economy biases to fiscal policy and all have implemented some fiscal governance mechanisms to counter these biases. These mechanisms are a key topic of this paper.

4. The paper is organized as follows: Section B presents some data on Israel’s political system and an empirical analysis of the relation between fiscal policy and the political infrastructure; Section C presents some options for reducing political economy distortions through reforms in the budget process and institutions; and Section D concludes.

B. Data and Empirical Analysis

5. The design and implementation of economic policies depends on the incentives of policymakers, and even well-intended governments may end up pursuing unsound policies. Optimal fiscal policy is frequently viewed through the prism of intertemporal tax smoothing, with the net present value of spending equal to the net present value of revenues. With this in mind, the budget is maintained in structural balance, but deficits can arise from the free play of automatic stabilizers. However, the literature shows that a plethora of inter related factors—fragmented governments, a high number of spending ministers acting independently, proportional electoral systems, electoral uncertainty, and short-government duration—can all act to generate sub-optimal, time-inconsistent fiscal policy.4 These can be traced to two fundamental problems:

  • First, according to the standard common pool model, politicians who represent different groups and vested interests have few incentives to constrain their spending demands given that the costs are shared by the population as a whole. This externality can also explain deficit biases and delayed stabilization.

  • Second, politicians may have a shorter-term view than the general public, especially if they are concerned with securing re-election. Relevant evidence for Israel on political business cycles is in Ben-Porath (1975) and Klein (2004).5 Voters may also fail to fully understand the intertemporal budget constraint, particularly long-term costs related to changes in entitlement programs.

6. In some ways, Israel’s political environment is prone to cause deficit and spending biases, consistent with the high public debt. Data covering the 17 legislatures and 31 governments over 1949–2006 suggest (Figures 1–4):

  • Governments are fragmented—the number of parties in government coalitions is highly variable, and so is the leading party’s share of ministers, which fluctuates between 0.4–0.7.

  • The number of spending ministries is high and has increased over time.

  • Government duration is typically short, averaging 22 months, and highly variable.

  • Government coalitions typically increase their representation shares in the Knesset by gaining the support of (smaller) parties, rather than through gains in share of large parties.

Political Determinants of Deficit and Spending Bias—Israel

Short and variable government duration.

Figure 1.
Figure 1.

Government Duration

(months)

Citation: IMF Staff Country Reports 2007, 025; 10.5089/9781451819632.002.A001

High and variable government fragmentation.

Figure 2.
Figure 2.

Majority Margin in Knesset (left) and Number of Parties in Government Coalitions (right)

Citation: IMF Staff Country Reports 2007, 025; 10.5089/9781451819632.002.A001

High and variable government fragmentation.

Figure 3.
Figure 3.

Strength of Leading Party in Govt. Coalition

(share of ministers)

Citation: IMF Staff Country Reports 2007, 025; 10.5089/9781451819632.002.A001

High number of spending ministries, and increasing over time.

Figure 4.
Figure 4.

Number of Spending Ministries

Citation: IMF Staff Country Reports 2007, 025; 10.5089/9781451819632.002.A001

7. A key feature of the political setting is the high degree of fractionalization. One index of fractionalization—the probability that two Knesset members chosen at random belong to different parties6—actually increases sharply since the 1990s (Figure 5). Another index—the probability that two ministers chosen at random belong to different parties in the coalition—exhibits no clear trend (Figure 6).

Fractionalization in the Knesset has increased since the 1990s.

Figure 5.
Figure 5.

Index of Fractionalization in the Knesset

(1949-2006)

Citation: IMF Staff Country Reports 2007, 025; 10.5089/9781451819632.002.A001

Fractionalization in government cabinets is highly variable and exhibits no clear trend.

Figure 6.
Figure 6.

Index of Fractionalization in the Government

(cabinet)

Citation: IMF Staff Country Reports 2007, 025; 10.5089/9781451819632.002.A001

8. More generally, the degree of proportionality in Israel’s parliamentary system may give rise to deficit and spending biases, if international evidence is of any guidance.7 Grilli and others (1991), for example, note that government debt and primary deficits tend to be much larger in representational and highly proportional democracies than in majoritarian ones. Israel’s democracy is representational, as the Knesset has 120 representatives for a single electoral district. It is an outlier among industrial democracies in terms of its degree of proportionality: only the Netherlands has a more proportional system than Israel (Table 1).

Table 1.

Political Fractionalization in Israel and Industrial Economies

article image
Source: reproduced from Grilli and others (1991), and augmented by the author with Israel.

Pr = Presidential democracy, Pa-M = Majoritarian Parliamentary Democracy, Pa-R = Representational Parliamentary Democracy.

Number of legislators in the popular house of the legislature, divided by the number of electoral districts.

Probability that two legislators chosen at random belong to different parties.

The fractionalization index 1965-76 corresponds to years 1975 and 1976 only (dictatorship prior to then).

Fractionalization indices are matched to periods as follows: 1960-64 (5th Knesset), 1965-76 (average of 6th to 8th Knessets), 1980-90 (average of 10th to 12th Knessets).

9. Econometric evidence corroborates the presence of political economy distortions to fiscal policy. A number of parsimoniously-specified regressions relate the fiscal balance over the period 1950–2005 to measures of the economic cycle (GDP growth; output gap); dummies for special events (conflicts) with significant effects on the fiscal balance; time trends and lagged dependent variables; and a variety of political economy variables (Tables 2-3).8 The results suggest that automatic stabilizers have not been allowed to have a significant, countercyclical effect. Moreover, the number of spending ministries, the degree of fractionalization in the Knesset, and, to a lesser extent, the number of parties in the coalition, are significant determinants of Israel’s fiscal performance: their effects go in the direction that is consistent with theoretical and empirical evidence in the literature on political economy biases to fiscal policy.

Table 2.

Regression Analysis

article image

All regressions cover the sample period 1951-2005. The t-statistic values are reported in parentheses, and are based on the Newey-West covariance estimator. The symbols (*), (**), and (***) indicate significance at the 1, 5, and 10 percent levels.

The budget balance includes net credit, and corresponds to “grand total” numbers reported in the Statistical Abstract of Israel (several issues).

The dummy variable is 1 in the years 1956, 1967, 1973, and 1982, and 0 in other years.

Table 3.

Regression Analysis

article image

All regressions cover the sample period 1951-2005. The t-statistic values are reported in parentheses, and are based on the Newey-West covariance estimator. The symbols (*), (**), and (***) indicate significance at the 1, 5, and 10 percent levels.

The budget balance includes net credit, and corresponds to “grand total” numbers reported in the Statistical Abstract of Israel (several issues).

The dummy variable is 1 in the years 1956, 1967, 1973, and 1982, and 0 in other years.

C. Reform to Reduce Political Economy Biases to Fiscal Policy

10. This section discusses two approaches to countering political economy biases to fiscal policy by strengthening fiscal governance: (i) transparency in budget preparation; and (ii) better fiscal institutions.

Budget transparency and analysis

11. A 2003 fiscal IMF ROSC made suggestions for improvements in budget preparation, a number of which have not been implemented. Specifically, the ROSC recommended that the budget contain a medium-run fiscal scenario based on unchanged policies, including a revised projection for the year in course; a listing of all the policy changes and their fiscal impact; and a systematic analysis of the impact of shocks and forecast errors on the budget. In addition, the ROSC advocated that the small, remaining extra budgetary funds be consolidated, international accounting and reporting standards adopted (notably a broader definition of the public sector), and the expenditure classification system be brought up to date.

12. The adoption of these proposals would bring budgetary transparency and analysis in line with best international practices and this would help in addressing the common pool problem. An examination of budget documents in countries with highly transparent practices and advanced budget analysis—New Zealand, Australia, Canada—reveals areas for improvement in Israel that are very similar to those identified by the ROSC (Table 4).9 Specifically, budget transparency and analysis could be enhanced by:

Table 4.

Transparency of budget documentation in selected countries

article image

These include mid year updates of fiscal indicators and rest-of-the-year projections.

It includes underlying assumptions about the domestic and international economies.

It also includes specific policy decisions under active consideration by the government at the time of the finalisation of the forecasts.

In the case of New Zealand, long-term projections are presented at least every 4 years, and cover the following 40 years.

New Zealand and Australia classify them into quantifiable and non-quantifiable.

  • Including detailed statements of long and short-term fiscal policy goals.

  • Presenting a detailed breakdown of ministries’ budgets and policy goals (including medium-term projections consistent with the central scenario).

  • Including detailed information on transfers and other fiscal transactions between the central and local governments.

  • Including detailed mid-year execution data and revised projections for the year in course, and supplementary appropriations to specific ministries or agencies.

  • Listing all budgetary measures and quantifying their effects.

  • Reporting the revenue and expenditure sensitivities with respect to the economic scenario underlying the central projections.

  • Quantifying the macroeconomic and specific fiscal risks to the central scenario.

  • Listing contingent liabilities—and, whenever possible, the corresponding contingent amounts—and provisions and charges against future budgets.

  • Describing the quantitative methodologies and/or fiscal models used to obtain the fiscal projections;

  • Presenting estimates of cyclically adjusted balances to facilitate the evaluation of the fiscal stance and the play of automatic stabilizers.

Improving institutions to strengthen incentives for sound fiscal policies

13. More transparency and better analysis likely would have to be complemented by institutional reform to further strengthen policymakers incentives to take a longer-term view of fiscal policy. The success with delegation of monetary policy to independent central banks has led some to argue that analogous mechanisms—e.g., fiscal councils—could play a useful role in promoting fiscal discipline. But, unlike monetary policy, fiscal policy has significant effects on intra- and inter-generational distribution of incomes and wealth and thus there are good reasons for leaving policy decisions in the hands of an elected government. However, the same does not hold for policy analysis and assessment.

The experience in other countries and Israel

14. EU countries have adopted numerous tactics designed to curb political economy distortions to fiscal policy. Some institutions have long legacies, but in many cases, countries adopted reforms during the 1980s and 1990s. The main governance structures that seem to contribute to fiscal discipline are:

  • Strong role for the finance minister within cabinet. In some countries, this is a long-standing tradition (e.g., United Kingdom, France, Germany) while others have adopted reforms in this direction (e.g., Greece, Italy).

  • Coalition agreements that include negotiated fiscal contracts (e.g., Netherlands, Finland, Austria, Ireland, Spain). This works best in diverse multi-party coalition governments.

  • Split ministries between different political parties. This tactic is used to prevent capture of a ministry by any one political party, to mitigate the common pool problem (e.g., Austria, Finland).

  • Formal fiscal rules (the Stability and Growth Pact, and national rules, e.g., in Germany, the Netherlands, Sweden, Denmark, and the United Kingdom). For the most part these are expenditure ceilings, used to cement coalition agreements, or “golden rules” for the deficit. Some countries also have balanced budget rules for lower levels of government.

15. Israel has relied on similar mechanisms with some success. The finance minister plays a strong role in the cabinet. After some consultation, the minister submits a single budget option to other ministers, who have only little time to accept or reject it en bloc before the cabinet’s decision is made (reducing the influence of the finance minister, as some have been asking for, without introducing safeguards elsewhere risks undermining fiscal stability).10 The latest coalition agreement includes specific fiscal targets for government spending and the budget deficit. And the DRL has served as a fiscal rule.

16. The experience with the mechanisms in Israel has been mixed, although improving. Various reasons could account for this. First, in the context of coalition talks there seems to be no agreement on a medium-term budget for each ministry. Second, for many years governments have tried to circumvent the constraints from the DRL by building budgets on overly optimistic revenue and growth projections, with the slippages then being blamed on the cycle—over the past few years this was no longer done and fiscal performance improved.11 Third, the DRL was often not sufficiently specific or ambitious and there were no significant penalties related to breaching the law—again, as soon as an expenditure growth ceiling was introduced into the DRL, performance improved. However, following the recent conflict in the north the ceiling has been modified and its application suspended (due to temporary war-related expenditures) until 2009.

Options for institutional reform

17. In many EU countries a key avenue to strengthen incentives for better fiscal policy has been to rely on committees or independent fiscal agencies (FA). These have come in different guises (Table 5):

Table 5.

Fiscal Councils: Institutional Design in Selected Countries

article image

  • Independent entities, which help provide independent macroeconomic forecasts to underpin the budget. This is done in Austria, Belgium (legally required), and the Netherlands, and is most useful to underpin a negotiated fiscal contract. In the Netherlands, the Central Planning Bureau (CPB) provides forecasts before elections that are used by political parties as the basis of platforms, and by coalition partners in the negotiation stage following the election. Evidence suggests that delegation of forecasting responsibility is an efficient way to address forecast biases.

  • “Inside committees”, which help coordinate and centralize fiscal policy decisions. These can come in various hues, including within cabinet, within parliament, and across political regions. In terms of the former, the United Kingdom has a tradition of using cabinet-level committees to arbitrate disputes between the finance minister and spending ministers, and to propose an aggregate spending target. Denmark and Sweden have institutionalized negotiations in parliament within a committee of select government and opposition representatives (given their penchant for minority governments). Spain’s Consejo de Politica Fiscal y Financiera (CPPF) is made up of ministers from different levels of government, and the committee irons out subnational fiscal targets. More recently, France established the Conseil d’orientation des finances publiques (COFIPU) consisting of representatives of different levels of government (plus some independent experts) to coordinate medium-term objectives.

  • Third, “outside committees”, which offer fiscal policy advice and recommendations, weighing on government decisions. They often feature some combination of civil servants, central bankers, academics, and representatives of the social partners. Some are short-lived and provisional, designed to achieve a specific purpose, while others have a long institutional history. The temporary commission route was adopted by Ireland and Portugal at various times to navigate their adjustment programs, and included key central bank officials. On the other hand, Belgium’s High Council of Finance (HCF) and Denmark’s Economic Council are more broad based in terms of composition, and have long institutional histories. These bodies can propose fiscal targets which are accepted by the government, as was often the case with the HCF. More often, they perform a more informal advisory or watchdog role.

18. Countries outside the EU have adopted similar strategies, notably recourse to independent agencies for impartial analysis of the government policies and their consequences. These include the U.S. Congressional Budget Office (CBO), which plays a key role in the annual budgeting process and in budget monitoring; Japan’s Fiscal System Council, which advises the finance minister on topics related to the budget (including on budget requests and proposals for new measures) and the government accounting system; and Korea’s National Assembly Budget Office and Mexico’s Center for the Study of Public Finances, which, like the CBO, are attached to parliament.

19. The experience with commissions and FAs is that their effectiveness depends both on their mandate and the context in which they operate.12 The political cost of ignoring a body that provides technical analysis is smaller than ignoring normative assessments and recommendations, because the latter provide a benchmark against which the government’s policies can be scrutinized in the public fora. Also, recommendations by an independent agency may well carry more weight than those by an ad-hoc commission but much depends on the reputation of the staffing and whether there is a specific audience with decision-making powers at the behest of which the reports are prepared. Crucially, as far as FAs are concerned, they have proved particularly useful whenever there was a clear, transparent fiscal benchmark—e.g., a fiscal rule or a coalition agreement/electoral promise—against which performance could be evaluated. In other words, there must be some initial political commitment to improving fiscal policy for commissions or agencies to be effective fairly quickly and it helps if this is expressed in the form of a rule.

20. From a more practical point of view, there are various pros and cons for commissions and agencies. Temporary commissions are easy to assemble and helpful in drawing attention to particular fiscal problems and the need for action. However, temporary commissions cannot follow-up on the response of policymakers. Permanent commissions could do so. However, they are not well-placed to deal regularly with a broad range of complex issues, notably all the intra- and inter-temporal fiscal implications of changes to the welfare state. FAs can do so because they have more resources but are therefore more expensive. Moreover, while a commission that meets regularly can attract reputable individuals from government, the central bank, academia, think tanks, or business—who can draw on technical support from their respective institutions—this might be much harder for a new agency that seeks permanent staffing. Accordingly, such an agency might take some time to build credibility and gain influence on public opinion and policies. Lastly, a commission of reputable individuals might find it easier than a new agency to engage a broad spectrum of society in the process of developing policy reform proposals. This, in turn, can help in building support for change.

Reform in the Israeli context

21. In some ways the setting in Israel is propitious for a commission or an agency to operate successfully. There is some significant support for a sound fiscal policy across the political spectrum. Also, benchmarks against which performance can be evaluated do exist in the form of the DRL and the coalition agreement. What is required is support for a more medium-run orientation of fiscal policy in a political setting that, from various respects, resembles that in other countries that have successful fiscal commissions or agencies. These include Belgium, Denmark, and the Netherlands, all of which either feature a high degree of proportionality in the electoral system and/or considerable political fractionalization. And all, at some stage, struggled to reign in higher deficits and debt.

  • One option would be to build a fiscal agency but this has the many aforementioned drawbacks. Alternatively, the tasks of such an agency could perhaps be performed by a more independent State Revenue Administration or Accounting General Department (both are presently within the MoF). However, neither of these has the full range of expertise necessary to do so and this would have to be remedied.

  • Another option would be for the BoI to play a greater role in assessing fiscal policy for the public. The BoI already provides budget analysis in its fall Recent Economic Development Reports. This could be expanded, including through the regular production of long-term sustainability analysis. But involving the central bank into fiscal/welfare analysis and policy assessment and debate does not come without risks.13 In Israel these are mitigated to some extent by the fact that part of the BoI Governor’s mandate is to act as an economic advisor to the government.

  • Alternatively, a nonpartisan committee with expert representatives could be formed. These could come from outside institutions (representatives from business, labor, think-tanks, academia, etc) but support from the MoF and the BoI could be considered as well. This committee could meet periodically to perform the most important tasks of a full-fledged agency and be accountable to the Finance Committee in the Knesset. It could be similar to National Economic Council that has been formed recently and that advises the Prime Minister, but with the focus on fiscal policy assessment rather than on poverty and employment.

22. A nonpartisan committee could have different mandates. One option would be a restricted mandate, limited to crafting macroeconomic and baseline (unchanged policies) revenue and expenditure projections to be used as inputs in the preparation of the budget; as well as doing the costing of budget proposals. More desirable would be a broader mandate that includes positive and normative assessments of the fiscal policy stance over the cycle and vis-à-vis the DRL; advice on the design of the DRL; and, to the extent resources permit, some long-term fiscal sustainability analysis. Of course, none of these assessments would be binding for the government or the Knesset. But they could serve in strengthening the debate of fiscal issues in Parliament and thus accountability of the committee to the Knesset Finance Committee would be key. This would also address the concern that the Knesset’s Finance Committee presently does not have the manpower resources to perform detailed and independent evaluations of the budget.

D. Conclusions

23. There are many ways to improve fiscal governance in Israel. Key will be improvements in budgetary transparency and analysis. However, both theoretical and empirical evidence from other countries and for Israel suggests that the political infrastructure in Israel might be distorting fiscal policy. Institutional reform could help counter the distortionary forces. Both theory and experience suggest that better institutions can improve the quality of fiscal policy. In particular, fiscal committees or agencies can help improve fiscal discipline, policy credibility, and serve a useful signaling role conducive to more stable expectations and less uncertainty. International experience suggests that there are many ways to proceed and the various options would need to be carefully explored bearing the Israeli context in mind.

References

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1

Prepared by Mario Catalán.

2

The DRL was enacted in 1991. The DRL’s initial targets were missed in 1994–96, 1999, 2001–05. However, in 1994, 2004, and 2005 the initial targets were revised and actual deficits were below the revised targets.

3

The reform allowed the direct election of the prime minister, and the May 1996 elections were conducted under the new system. However, the new system was abolished in 2001, and in the 2003 and 2006 elections the Prime Minister was nominated by the Knesset. Empirical analysis of the fiscal implications of the electoral reform is not yet available.

4

See, for example, Roubini and Sachs, 1989; Grilli, Masciandaro, and Tabellini, 1991; Alesina and Perotti, 1995ab; Alesina, Roubini, and Cohen, 1999; Kontopoulos and Perotti, 1999; Annett, 2002; Milesi-Ferretti, Perotti, and Rostagno, 2002.

5

Brender (1999) also finds evidence of pre-electoral manipulation by local governments in the 1998 campaign, but he argues that it hurt rather than helped the incumbents thanks to reforms that enhanced transparency and accountability.

6

The index is given by 1-∑i=1NTi2, where Ti is the i th party’s decimal share of the vote in the Knesset and N is the number of parties. This definition is based on Rae (1967).

7

Bingham Powell (1982), and Grilli and others (1991), identify the degree of proportionality of a parliamentary democracy with the number of representatives per electoral district, and define systems with less than five representatives per district as majoritarian, and those with five or more as representational.

8

Notice that there can be feedback from the budget balance variable to some of the political variables. This may explain why the effects associated with cabinet fractionalization, the government’s majority margin in the Knesset, the Prime Minister’s duration, and the leading party’s share in the coalition, while having the right sign, are not significant. In principle, eliminating this feedback with instruments should strengthen the conclusions. A more complex approach would be to estimate a system of equations that jointly explain political developments and fiscal policy.

9

All relevant budget documents for these countries are available online at: New Zealand: http://www.treasury.govt.nz/budget2006/; Canada: http://www.fin.gc.ca/budtoce/2006/budliste.htm; Australia: http://www.budget.gov.au/.

10

See, for example, Alesina and Perotti, 1996.

11

Selim Elekdag, Natan Epstein, and Marialuz Moreno-Badía (2006).

12

For a full discussion, see Kumar (2006).

13

On this point, see Buiter (2006) who argues that independent central banks should stay out of the public policy debate on matters other than monetary policy and the institutional arrangements for conducting monetary policy. The reason, he argues, is that central bank operational independence precludes substantive accountability; it is compatible only with a weak form of formal accountability: reporting obligation. According to Buiter, central bank independence will only survive if it is viewed as legitimate by the polity and its citizens. A necessary condition for this is that the central bank restricts its activities and public discourse to its natural core mandate: price stability and the capacity and willingness to act as lender of last resort.

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1

Prepared by Richard Pratt and Natan Epstein

2

See Llewellyn (2006), Martinez and Rose (2003), Mwenda and Fleming (2001) and Taylor and Fleming (1999) for a sample of international and historical perspective.

3

See Table 2 in Čihák, and Podpiera (2006), and Table 1 in Martinez and Rose (2003).

4

See IMF Country Report 06/121 for extensive discussion on the recent capital market reforms in Israel.

5

Fiechter (2006) summarizes the key features of an effective supervision system and discusses which model is most likely to reflect these features; Llewellyn (2006) and Martinez and Rose (2003) assess the broader pros and cons of the models. Kremers and others (2003) also describe the pros and cons of combining different supervisory activities within one organization.

6

See Kremers and others (2003) for analytical comparison between the applications of the “twin peaks” models in the Netherlands and the U.K. See also Mwenda and Fleming (2001) for an overview of the U.K experience with single integrated financial services supervision.

7

Fiechter (2006) highlights a “third model” for banking supervision, adopted by the United States, whereby a separated structure has evolved into a “two sets of eyes” approach under which a given financial institution is assessed by at least two separate supervisory agencies. Nonetheless, the relative advantages of such variations can be best assessed by focusing on the two core models and extrapolating the merits and demerits.

8

Issues relating to dispute resolution are discussed below in paragraph 30.

Same Series

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
Israel: Selected Issues
Author: International Monetary Fund
Volume/Issue:
Volume 2007: Issue 025
Publisher:
International Monetary Fund
ISBN:
9781451819632
ISSN:
1934-7685
Pages:
35
DOI:
https://doi.org/10.5089/9781451819632.002

Government Duration

(months)

Majority Margin in Knesset (left) and Number of Parties in Government Coalitions (right)

Strength of Leading Party in Govt. Coalition

(share of ministers)

Number of Spending Ministries

Index of Fractionalization in the Knesset

(1949-2006)

Index of Fractionalization in the Government

(cabinet)