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The Discipline-Enhancing Role of Fiscal Institutions: Theory and Empirical Evidence Author info | Abstract | Publisher info | Download info | Related research | Statistics Xavier Debrun
Manmohan S. Kumar
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This paper discusses the role of fiscal institutions, including budget rules and non-partisan agencies, in enhancing fiscal discipline. A dynamic model of fiscal policy shows that optimal institutions lack credibility unless the costs to bypass them are sufficiently high. In our model, a combination of complete budgetary transparency and strong democratic accountability suffice to establish credibility. Under incomplete budgetary transparency, accountable governments may also use institutions as a signal of competence to increase their reelection chances, which in turn erodes the penchant for excessive deficits. In light of the theory, empirical tests of the effectiveness of institutions are undertaken. The results further emphasize that analysis should pay due attention to simultaneity bias (because disciplined governments may be more likely to adopt strict institutions). Also, interactions among different fiscal institutions, and between the latter and key features of the political system need to be explored further.
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Paper provided by International Monetary Fund in its series IMF Working Papers with number
07/171.
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Length: 45 pages
Date of creation: 18 Jul 2007Date of revision:
Handle: RePEc:imf:imfwpa:07/171Contact details of provider: Postal: International Monetary Fund, Washington, DC USA Phone: (202) 623-7000 Fax: (202) 623-4661 Email: Web page: http://www.imf.org/external/pubind.htm More information through EDIRC
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Keywords: Working Paper ; Fiscal policy ; Fiscal transparency ; Budget deficits ; Budgetary policy ; Other versions of this item:
This paper has been announced in the following NEP Reports :
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