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Can Budget Institutions Counteract Political Indiscipline?

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  • Ashoka Mody
  • Stefania Fabrizio

Abstract

The budget is an expression of political rather than economic priorities. We confirm this proposition for a group of new and potential members of the European Union, finding that politics dominates. The contemporary practice of democracy can increase budget deficits through not only ideological preferences but also more fragmented government coalitions and higher voter participation. Long-term structural forces, triggered by societal divisions and representative electoral rules, have more ambiguous implications but also appear to increase budget pressures, as others have also found. However, our most robust, and hopeful, finding is that budget institutions-mechanisms and rules of the budget process-that create checks and balances have significant value even when the politics is representative but undisciplined, and when long-term structural forces are unfavorable.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/123.

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Length: 53
Date of creation: 01 May 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/123

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Keywords: Budgets; Budget deficits; Government expenditures; Public finance; National budgets; fiscal institutions; fiscal performance; budget institutions; fiscal discipline; budgetary institutions; budget process; decentralization; fiscal outcome; budget requests; fiscal outcomes; budgetary outcomes; fiscal policy; budget balance; fiscal decentralization; budgetary discipline; budget law; budget preparation; budget aggregates; budget implementation; public debt; fiscal balance; government expenditure; budget authorization; public finances; budget outcomes; fiscal pressures; fiscal resources; budget discipline; budgetary performance; fiscal conservatism; fiscal rules; public spending; budget targets; primary budget balance; budget proposal; fiscal deficit; fiscal targets; budget surplus; fiscally conservative; budgetary power; organic budget law; public expenditures; fiscal effort; government budget; fiscal position; budgetary resources; fiscal centralization; budgetary targets; budget negotiations; capital expenditure; budget bids; budgetary decision making; public expenditure; budget constraint; budget revenues; government spending; taxation; general government expenditure; budget deficit; budgetary decision; foreign borrowing; budgetary position; general budget; fiscal deficits; fiscal authority; national budget; fiscal accountability; fiscal decisions; fiscal crises; domestic fiscal institutions; fragmented fiscal policy; fiscal shocks; budget circular; debt burden; budget decisions; fiscal adjustments; fiscal reforms; fiscal frameworks; fiscal irresponsibility; budget planning; budget rules; budget committee; expenditure increase; fiscal responsibility; budget rule; medium-term budgetary frameworks; fiscal council; fiscal policy outcomes; budget procedure; budgetary processes; fiscal decision;

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  1. Tim Besley, 2002. "Political institutions and policy choices: evidence from the United States," IFS Working Papers W02/13, Institute for Fiscal Studies.
  2. Alberto Alesina & Roberto Perotti, 1996. "Budget Deficits and Budget Institutions," IMF Working Papers 96/52, International Monetary Fund.
  3. Ernesto H. Stein & Ernesto Talvi & Alejandro Grisanti, 1998. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," Research Department Publications 4110, Inter-American Development Bank, Research Department.
  4. Philippe Aghion & Alberto Alesina & Francesco Trebbi, 2002. "Endogenous Political Institutions," NBER Working Papers 9006, National Bureau of Economic Research, Inc.
  5. Torsten Persson, 2001. "Do Political Institutions Shape Economic Policy?," NBER Working Papers 8214, National Bureau of Economic Research, Inc.
  6. Alesina, Alberto & Hausmann, Ricardo & Hommes, Rudolf & Stein, Ernesto, 1999. "Budget institutions and fiscal performance in Latin America," Journal of Development Economics, Elsevier, vol. 59(2), pages 253-273, August.
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  8. Perotti, Roberto & Kontopoulos, Yianos, 2002. "Fragmented fiscal policy," Journal of Public Economics, Elsevier, vol. 86(2), pages 191-222, November.
  9. Gleich, Holger, 2003. "Budget institutions and fiscal performance in Central and Eastern European countries," Working Paper Series 0215, European Central Bank.
  10. Mark Hallerberg & Jurgen von Hagen, 1997. "Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union," NBER Working Papers 6341, National Bureau of Economic Research, Inc.
  11. Olivier Blanchard, 2005. "European Unemployment: The Evolution of Facts and Ideas," NBER Working Papers 11750, National Bureau of Economic Research, Inc.
  12. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
  13. International Monetary Fund, 1996. "Budget Processes and Commitment to Fiscal Discipline," IMF Working Papers 96/78, International Monetary Fund.
  14. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
  15. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
  16. Yianos Kontopoulos & Roberto Perotti, 1999. "Government Fragmentation and Fiscal Policy Outcomes: Evidence from OECD Countries," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 81-102 National Bureau of Economic Research, Inc.
  17. Wyplosz, Charles, 2002. "Fiscal Policy: Institutions versus Rules," CEPR Discussion Papers 3238, C.E.P.R. Discussion Papers.
  18. Andres Velasco, 1999. "A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 37-58 National Bureau of Economic Research, Inc.
  19. Dennis C. Mueller & Thomas Stratmann, 2002. "The Economic Effects of Democratic Participation," CESifo Working Paper Series 656, CESifo Group Munich.
  20. Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August.
  21. Barry Eichengreen & Ricardo Hausmann & Jürgen Von Hagen, 1999. "Reforming Budgetary Institutions in Latin America: The Case for a National Fiscal Council," Open Economies Review, Springer, vol. 10(4), pages 415-442, October.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Mody on Institutional Change
    by Karl Whelan in The Irish Economy on 2010-07-23 10:19:26
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