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Political Economy of Fiscal Institutions

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  • Hagen, Jürgen von

Abstract

We discuss two essential problems of the political economy of public finances: The principal agent problem between voters and elected politicians and the common pool problem arising from the fact that money drawn from a general tax fund is used to pay for policies targeting more or less narrow groups in society. Three institutional mechanisms exist to deal with these problems, ex-ante rules controlling the behavior of elected policy makers, electoral rules creating accountability of and competition among policy makers, and budgeting processes internalizing the common pool externality. We review recent theoretical and empirical research and discuss its implications for research and institutional design.

Suggested Citation

  • Hagen, Jürgen von, 2005. "Political Economy of Fiscal Institutions," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 149, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:149
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    File URL: https://epub.ub.uni-muenchen.de/13402/1/149.pdf
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    References listed on IDEAS

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    1. Barry Eichengreen and Jurgen von Hagen., 1995. "Fiscal Policy and Monetary Union: Federalism, Fiscal Restrictions and the No-Bailout Rule," Center for International and Development Economics Research (CIDER) Working Papers C95-056, University of California at Berkeley.
    2. Guido Tabellini, "undated". "Constitutional determinants of government spending," Working Papers 162, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    3. 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.
    4. repec:cup:apsrev:v:87:y:1993:i:02:p:455-464_10 is not listed on IDEAS
    5. von Hagen, Jurgen & Eichengreen, Barry, 1996. "Federalism, Fiscal Restraints, and European Monetary Union," American Economic Review, American Economic Association, vol. 86(2), pages 134-138, May.
    6. Alberto Alesina & Reza Baqir & William Easterly, 1999. "Public Goods and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1243-1284.
    7. 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.
    8. Fratianni, Michele & von Hagen, Jürgen & Waller, Christopher, 1992. "From EMS to EMU," CEPR Discussion Papers 618, C.E.P.R. Discussion Papers.
    9. Massimo Bordignon, 2000. "Problems of Soft Budget Constraints in Intergovernmental Relationships: The Case of Italy," Research Department Publications 3099, Inter-American Development Bank, Research Department.
    10. von Hagen, Jurgen, 1991. "A note on the empirical effectiveness of formal fiscal restraints," Journal of Public Economics, Elsevier, vol. 44(2), pages 199-210, March.
    11. Hallerberg, Mark, 2000. "The importance of domestic political institutions: Why and how Belgium and Italy qualified for EMU," ZEI Working Papers B 10-2000, University of Bonn, ZEI - Center for European Integration Studies.
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    Citations

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    Cited by:

    1. Foremny, Dirk, 2014. "Sub-national deficits in European countries: The impact of fiscal rules and tax autonomy," European Journal of Political Economy, Elsevier, vol. 34(C), pages 86-110.
    2. Klaus Schmidt-Hebbel, 2012. "Fiscal Institutions in Resource-Rich Economies: Lessons from Chile and Norway," Documentos de Trabajo 416, Instituto de Economia. Pontificia Universidad Católica de Chile..
    3. Kantorowicz, Jarosław, 2017. "Electoral systems and fiscal policy outcomes: Evidence from Poland," European Journal of Political Economy, Elsevier, vol. 47(C), pages 36-60.
    4. Guerguil, Martine & Mandon, Pierre & Tapsoba, René, 2017. "Flexible fiscal rules and countercyclical fiscal policy," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 189-220.
    5. Andrea Rieck & Ludger Schuknecht, 2017. "Preserving Government Solvency: A Global Policy Perspective," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(4), pages 71-81, 02.
    6. repec:ces:ifodic:v:14:y:2017:i:4:p:19267794 is not listed on IDEAS
    7. Bielawska, Kamila & Chłoń-Domińczak, Agnieszka & Stańko, Dariusz, 2017. "Retreat from mandatory pension funds in countries of the Eastern and Central Europe in result of financial and fiscal crisis: Causes, effects and recommendations for fiscal rules," MPRA Paper 83345, University Library of Munich, Germany.

    More about this item

    Keywords

    electoral systems; fiscal rules; budgeting processes;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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