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The Effects Of Fiscal And Monetary Discipline On Budgetary Outcomes

Author

Listed:
  • Bilin Neyapti

    (Bilkent University)

Abstract

This paper extends the game-theoretic model of Von Hagen and Harden (1995) that analyzes the impact of fiscal discipline on budgetary outcomes.It analyzes the effects on budgetary outcomes of both fiscal and monetary discipline, which are evaluated with respect to the relevant institutional rules. The model predicts that while both inflation and budget deficits are negatively associated with fiscal discipline, they may be positively associated with monetary discipline, proxied by central bank independence. This result obtains due to optimizing agents who internalize the burden of spending: inflation. Although not conclusive due to data limitations, the empirical findings of the paper support these predictions.

Suggested Citation

  • Bilin Neyapti, 2003. "The Effects Of Fiscal And Monetary Discipline On Budgetary Outcomes," Working Papers 2003/1, Turkish Economic Association.
  • Handle: RePEc:tek:wpaper:2003/1
    as

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    File URL: http://www.tek.org.tr/dosyalar/B-NEYAPTI-FEB03-04-02.pdf
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    References listed on IDEAS

    as
    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    2. Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-571, October.
    3. F. Gulcin Ozkan & Anne Sibert & Alan Sutherland, "undated". "Monetary Union, Entry Conditions and Economic Reform," Discussion Papers 97/15, Department of Economics, University of York.
    4. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-398, September.
    5. Cukierman, Alex & Lippi, Francesco, 1999. "Central bank independence, centralization of wage bargaining, inflation and unemployment:: Theory and some evidence," European Economic Review, Elsevier, vol. 43(7), pages 1395-1434, June.
    6. Alesina, Alberto & Gatti, Roberta, 1995. "Independent Central Banks: Low Inflation at No Cost?," American Economic Review, American Economic Association, vol. 85(2), pages 196-200, May.
    7. Berument, Hakan, 1998. "Central Bank Independence and Financing Government Spending," Journal of Macroeconomics, Elsevier, vol. 20(1), pages 133-151, January.
    8. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, January.
    9. Cukierman, Alex & Miller, Geoffrey P. & Neyapti, Bilin, 2002. "Central bank reform, liberalization and inflation in transition economies--an international perspective," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 237-264, March.
    10. Aizenman, Joshua & Hausmann, Ricardo, 2000. "The impact of inflation on budgetary discipline," Journal of Development Economics, Elsevier, vol. 63(2), pages 425-449, December.
    11. von Hagen, Jurgen & Harden, Ian J., 1995. "Budget processes and commitment to fiscal discipline," European Economic Review, Elsevier, vol. 39(3-4), pages 771-779, April.
    12. Bilin Neyapti, 2003. "Budget Deficits and Inflation: The Roles of Central Bank Independence and Financial Market Development," Contemporary Economic Policy, Western Economic Association International, vol. 21(4), pages 458-475, October.
    13. Waller, Christopher J & Walsh, Carl E, 1996. "Central-Bank Independence, Economic Behavior, and Optimal Term Lengths," American Economic Review, American Economic Association, vol. 86(5), pages 1139-1153, December.
    14. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-162, May.
    15. Eijffinger, S. & De Hann, J., 1995. "The Political Economy of Central Bank Independence," Papers 9587, Tilburg - Center for Economic Research.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Budget Deficits; Central Bank Independence; Fiscal Discipline; Inflation;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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