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Can Budget Institutions Counteract Political Indiscipline?

  • Ashoka Mody
  • Stefania Fabrizio

The budget is an expression of political rather than economic priorities. We confirm this proposition for a group of new and potential members of the European Union, finding that politics dominates. The contemporary practice of democracy can increase budget deficits through not only ideological preferences but also more fragmented government coalitions and higher voter participation. Long-term structural forces, triggered by societal divisions and representative electoral rules, have more ambiguous implications but also appear to increase budget pressures, as others have also found. However, our most robust, and hopeful, finding is that budget institutions-mechanisms and rules of the budget process-that create checks and balances have significant value even when the politics is representative but undisciplined, and when long-term structural forces are unfavorable.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/123.

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Length: 53
Date of creation: 01 May 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/123
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  1. Alberto Alesina & Roberto Perotti, 1996. "Budget Deficits and Budget Institutions," NBER Working Papers 5556, National Bureau of Economic Research, Inc.
  2. Yianos Kontopoulos & Roberto Perotti, 1999. "Government Fragmentation and Fiscal Policy Outcomes: Evidence from OECD Countries," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 81-102 National Bureau of Economic Research, Inc.
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  9. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
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  15. Gleich, Holger, 2003. "Budget institutions and fiscal performance in Central and Eastern European countries," Working Paper Series 0215, European Central Bank.
  16. Olivier Blanchard, 2005. "European Unemployment: The Evolution of Facts and Ideas," NBER Working Papers 11750, National Bureau of Economic Research, Inc.
  17. Mueller, Dennis C. & Stratmann, Thomas, 2003. "The economic effects of democratic participation," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2129-2155, September.
  18. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
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