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The Effects Of Fiscal And Monetary Discipline On Budgetary Outcomes

  • Bilin Neyapti

    (Bilkent University)

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.

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File URL: http://www.tek.org.tr/dosyalar/B-NEYAPTI-FEB03-04-02.pdf
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Paper provided by Turkish Economic Association in its series Working Papers with number 2003/1.

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Length: 28 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:tek:wpaper:2003/1
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  1. International Monetary Fund, 1996. "Budget Processes and Commitment to Fiscal Discipline," IMF Working Papers 96/78, International Monetary Fund.
  2. Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-71, October.
  3. repec:dgr:kubcen:1998116 is not listed on IDEAS
  4. Ozkan, F Gulcin & Sibert, Anne & Sutherland, Alan, 1997. "Monetary Union, Entry Conditions and Economic Reform," CEPR Discussion Papers 1720, C.E.P.R. Discussion Papers.
  5. Eijffinger, S. & De Hann, J., 1995. "The Political Economy of Central Bank Independence," Papers 9587, Tilburg - Center for Economic Research.
  6. Aizenman, Joshua & Hausmann, Ricardo, 2000. "The impact of inflation on budgetary discipline," Journal of Development Economics, Elsevier, vol. 63(2), pages 425-449, December.
  7. 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.
  8. 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 1139-53, December.
  9. 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 151-62, May.
  10. 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 353-98, September.
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