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Breaking the Impediments to Budgetary Reforms

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  • Ashoka Mody
  • Stefania Fabrizio

Abstract

Under what conditions are budget institutions likely to be strengthened? We find that fiscal deficits do not help in focusing policymakers on undertaking reforms. To the contrary, the larger the deficit, the lower is the likelihood of reforms. Large deficits apparently imply strong claims on the budget and, hence, generate unwillingness to impose self-discipline. As such, countries will tend to move either to small fiscal deficits and good institutions or large deficits and weak institutions. Economic shocks (if they are large enough) can help build a constituency for improving budget institutions. However, if forgiving markets accommodate economic shocks, even such pressure may be insufficient. Forwardlooking and credible leadership appears to be an important ingredient of the solution.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/82.

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Length: 31
Date of creation: 01 Mar 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/82

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Keywords: Budgetary policy; Budgetary reforms; Budget deficits; budget institutions; fiscal institutions; budget process; fiscal performance; fiscal discipline; public finances; budgetary process; excessive deficit procedure; fiscal transparency; account deficits; fiscal deficits; fiscal policy; fiscal balance; fiscal outcomes; budget surplus; budgetary institutions; budget deficit; budget size; budgetary resources; budgetary reform; fiscal budget; public finance; fiscal rules; budget situation; budget law; budget balances; budget reform; fiscal self-discipline; fiscal positions; budget system; expenditure increase; public spending; fiscal outcome; fiscal distress; fiscal frameworks; fiscal crises; budget outcomes; primary budget surplus; budgetary practices; fiscal governance; primary deficit; tax burden; fiscal consolidation;

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References

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  1. Alberto Alesina & Allan Drazen, 1989. "Why are Stabilizations Delayed?," NBER Working Papers 3053, National Bureau of Economic Research, Inc.
  2. Gleich, Holger, 2003. "Budget institutions and fiscal performance in Central and Eastern European countries," Working Paper Series, European Central Bank 0215, European Central Bank.
  3. Hallerberg, Mark & Strauch, Rolf & Hagen, Jürgen von, 2006. "The design of fiscal rules and forms of governance in European Union countries," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 150, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 34(1), pages 9-41, March.
  5. Mark Hallerberg & Jürgen von Hagen, 1999. "Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union," NBER Chapters, National Bureau of Economic Research, Inc, in: Fiscal Institutions and Fiscal Performance, pages 209-232 National Bureau of Economic Research, Inc.
  6. Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(4), pages 799-821, August.
  7. Cukierman, Alex & Tommasi, Mariano, 1998. "When Does It Take a Nixon to Go to China?," American Economic Review, American Economic Association, American Economic Association, vol. 88(1), pages 180-97, March.
  8. Stein, Ernesto & Hommes, Rudolf & Hausmann, Ricardo & Alesina, Alberto, 1999. "Budget Institutions and Fiscal Performance in Latin America," Scholarly Articles 4553021, Harvard University Department of Economics.
  9. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1146-55, December.
  10. Ashoka Mody & Stefania Fabrizio, 2006. "Can Budget Institutions Counteract Political Indiscipline?," IMF Working Papers 06/123, International Monetary Fund.
  11. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who Adjusts and When? On the Political Economy of Reforms," NBER Working Papers 12049, National Bureau of Economic Research, Inc.
  12. Abdul Abiad & Ashoka Mody, 2005. "Financial Reform: What Shakes It? What Shapes It?," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 66-88, March.
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Cited by:
  1. Daniel Leigh & Stefania Fabrizio & Ashoka Mody, 2009. "The Second Transition," IMF Working Papers 09/43, International Monetary Fund.
  2. Karsten Staehr, 2010. "The global financial crisis and public finances in the New EU Countries from Central and Eastern Europe," Bank of Estonia Working Papers, Bank of Estonia wp2010-02, Bank of Estonia, revised 04 Feb 2010.

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