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Fiscal Institutions and Public Spending Volatility in Europe

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  • Bruno Albuquerque

Abstract

This work provides empirical evidence for a sizeable, statistically significant negative impact of the quality of fiscal institutions on public spending volatility for a panel of 25 EU countries over the 1980-2007 period. The dependent variable is the volatility of discretionary fiscal policy, which does not represent reactions to changes in economic conditions. Our baseline results thus give support to the strengthening of institutions to deal with excessive levels of discretion volatility, as more checks and balances make it harder for governments to change fiscal policy for reasons unrelated to the current state of the economy. Our results also show that bigger countries and bigger governments have less public spending volatility. In contrast to previous studies, the political factors do not seem to play a role, with the exception of the Herfindahl index, which suggests that high concentration of parliamentary seats in a few parties would increase public spending volatility.

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Bibliographic Info

Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w201017.

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Date of creation: 2010
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Handle: RePEc:ptu:wpaper:w201017

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  1. António Afonso & Luca Agnello & Davide Furceri, 2010. "Fiscal policy responsiveness, persistence, and discretion," Public Choice, Springer, vol. 145(3), pages 503-530, December.
  2. Bruno Albuquerque, 2010. "Fiscal Institutions and Public Spending Volatility in Europe," Working Papers w201017, Banco de Portugal, Economics and Research Department.
  3. António Afonso & Davide Furceri, 2008. "Government Size, Composition, Volatility and Economic Growth," Working Papers Department of Economics 2008/04, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  4. Hallerberg, Mark & Strauch, Rolf & von Hagen, Jurgen, 2007. "The design of fiscal rules and forms of governance in European Union countries," European Journal of Political Economy, Elsevier, vol. 23(2), pages 338-359, June.
  5. Xavier Debrun & Laurent Moulin & Alessandro Turrini & Joaquim Ayuso-i-Casals & Manmohan S. Kumar, 2008. "Tied to the mast? National fiscal rules in the European Union," Economic Policy, CEPR & CES & MSH, vol. 23, pages 297-362, 04.
  6. Furceri, Davide & Poplawski Ribeiro, Marcos, 2008. "Government spending volatility and the size of nations," Working Paper Series 0924, European Central Bank.
  7. Roberto Perotti & Massimo V. Rostagno & Gian-Maria Milesi-Ferretti, 2001. "Electoral System and Public Spending," IMF Working Papers 01/22, International Monetary Fund.
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Cited by:
  1. Bruno Albuquerque, 2010. "Fiscal Institutions and Public Spending Volatility in Europe," Working Papers w201017, Banco de Portugal, Economics and Research Department.
  2. Crivelli, Ernesto, 2013. "Fiscal impact of privatization revisited: The role of tax revenues in transition economies," Economic Systems, Elsevier, vol. 37(2), pages 217-232.
  3. Yuan-Hong Ho & Chiung-Ju Huang, 2013. "Presidential Election, Checks and Balances, and Allocation of Public Expenditures in Taiwan," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 9(1), pages 31-53, January.

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