Can Budget Institutions Counteract Political Indiscipline?, Issues 2006-2123
International Monetary Fund, European Department, May 1, 2006 - Budget - 53 pages
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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Budget Institutions in New and Potential EU Member States
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Alesina Blanchard and Wolfers block expenditures budget deficits budget institutions index budget process budgetary institutions budgetary outcomes Bulgaria cabinet coefficient column conditioning variables contemporary politics contract-based approach Country dummies country specific component Czech Republic debt debt-to-GDP ratio Deeper Determinants draft budget electoral rules electoral systems errors in parentheses Estonia Ethnic fractionalization European European Union Evidence from Nonlinear Evidence from Panel Exp-to Expenditure and Revenue finance minister fiscal conservatism fiscal discipline fiscal institutions index fiscal outcome Fiscal Performance GDP GDP GDP Government fragmentation Government ideology implementation Inflation influence Institutions and Fiscal lagged larger district magnitude Latvia Left/right Lithuania ministries Nonlinear Least Squares Observations 63 63 oil prices Openness index overall Panel Data Regressions parliament phases Poland Policy political variables Poterba primary balance Primary balance-to-GDP ratio Rev-to role Romania sample Seemingly Unrelated Regressions Slovak Republic Slovenia spending Standard errors time-invariant variables time-varying Unemployment rate voter participation Voter turnout within-country