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Do Budgetary Institutions Mitigate the Common Pool Problem? New Empirical Evidence for the EU

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Abstract

We analyze how budgetary institutions affect government budget deficits in member states of the European Union during 1984-2003 employing new indicators provided by Hallerberg et al. (2009). Using panel fixed effects models, we examine whether the impact of budgetary institutions on budget deficits is conditioned by political fragmentation (i.e., ideological differences among parties in government) and size fragmentation (i.e., the effective number of parties in government or the number of spending ministers). Our results suggest that strong budgetary institutions, no matter whether they are based on delegation to a strong minister of finance or on fiscal contracts, reduce the deficit bias in case of strong ideological fragmentation. In contrast, the impact of budgetary institutions is not conditioned by size fragmentation.

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Bibliographic Info

Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 12-303.

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Length: 27 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:kof:wpskof:12-303

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Keywords: budgetary institutions; fiscal policy; political fragmentation; size fragmentation;

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  1. Jakob de Haan & Wim Moessen & Bjom Volkerink, 1999. "Budgetary Procedures-Aspects and Changes: New Evidence for Some European Countries," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 265-300 National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Nerlich, Carolin & Reuter, Wolf Heinrich, 2013. "The design of national fiscal frameworks and their budgetary impact," Working Paper Series 1588, European Central Bank.
  2. Björn Kauder & Benjamin Larin & Niklas Potrafke, 2014. "Was bringt uns die große Koalition? Perspektiven der Wirtschaftspolitik," Ifo Working Paper Series Ifo Working Paper No. 172, Ifo Institute for Economic Research at the University of Munich.
  3. Jochen O. Mierau & Eduard Suari Andreu, 2014. "Fiscal Rules and Government Size in the European Union," CESifo Working Paper Series 4693, CESifo Group Munich.

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