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Multiyear budgets and fiscal performance: Panel data evidence

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  • Vlaicu, Razvan
  • Verhoeven, Marijn
  • Grigoli, Francesco
  • Mills, Zachary

Abstract

In the last two decades more than 120 countries have adopted a multiyear budget process (Medium-Term Framework, or MTF) that enables the central government to set multiyear fiscal targets. This paper analyzes a newly-collected dataset of worldwide MTF adoptions during 1990–2008. It exploits within-country variation in adoption in a dynamic panel framework to estimate MTFs' impacts on aggregate as well as sectoral measures of fiscal performance. We find that on average multiyear budgeting improves budget balance by about 2 percentage points with more advanced MTF phases having a larger impact. Higher-phase MTFs also reduce health spending volatility, while only the top-phase MTF has a measurable impact on health sector technical efficiency.

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  • Vlaicu, Razvan & Verhoeven, Marijn & Grigoli, Francesco & Mills, Zachary, 2014. "Multiyear budgets and fiscal performance: Panel data evidence," Journal of Public Economics, Elsevier, vol. 111(C), pages 79-95.
  • Handle: RePEc:eee:pubeco:v:111:y:2014:i:c:p:79-95
    DOI: 10.1016/j.jpubeco.2013.12.011
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    3. Pessino, Carola & Izquierdo, Alejandro & Vuletin, Guillermo, 2018. "Better Spending for Better Lives: How Latin America and the Caribbean Can Do More with Less," IDB Publications (Books), Inter-American Development Bank, number 9152, December.
    4. Hansen, Daniel, 2020. "The effectiveness of fiscal institutions: International financial flogging or domestic constraint?," European Journal of Political Economy, Elsevier, vol. 63(C).
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    8. Ardanaz, Martín & Izquierdo, Alejandro, 2022. "Current expenditure upswings in good times and public investment downswings in bad times? New evidence from developing countries," Journal of Comparative Economics, Elsevier, vol. 50(1), pages 118-134.
    9. Fritz, Verena & Sweet, Stephanie & Verhoeven, Marijn, 2014. "Strengthening public financial management : exploring drivers and effects," Policy Research Working Paper Series 7084, The World Bank.
    10. Slawomir Franek & Marta Postula, 2020. "Does Eurozone Membership Strengthen the Significance of Fiscal Instruments?," Annals of Economics and Finance, Society for AEF, vol. 21(1), pages 131-151, May.
    11. Duygun, Meryem & Ozturk, Huseyin & Shaban, Mohamed, 2016. "The role of sovereign credit ratings in fiscal discipline," Emerging Markets Review, Elsevier, vol. 27(C), pages 197-216.
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    More about this item

    Keywords

    Budget institutions; Medium-term framework; Fiscal discipline; Health sector; Technical efficiency; Dynamic panel data analysis;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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