Breaking The Impediments To Budgetary Reforms: Evidence From Europe
In addition to the known effects of government fractionalization, we find that larger deficits are associated with a reduced likelihood of budgetary reforms. In a war of attrition setting, larger deficits signify stronger entitlements on the budget, generating unwillingness to impose self-discipline. A sense of crisis emerges only when macroeconomic imbalances appear. However, while a crisis creates the opportunity for reform, policy credibility is important for effectively using that opportunity. We find that one way of establishing credibility is by undertaking measures in opposition to the government's known ideological position - these presumably signal motivation by broader social welfare considerations. Copyright 2010 Blackwell Publishing Ltd. International Monetary Fund retains copyright and all other rights in the manuscript of this 〈chapter/article〉 as submitted for publication.
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Volume (Year): 22 (2010)
Issue (Month): 3 (November)
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