The Discipline-Enhancing Role of Fiscal Institutions [electronic resource] : Theory and Empirical Evidence, Debrun, Xavier.
- Washington, D.C. : International Monetary Fund, 2007.
- IMF eLibrary
IMF Working Papers; Working Paper No. 07/171.
IMF Working Papers; Working Paper No. 07/171
- Government document
1 online resource (45 p.)
- Local subjects:
- Budget constraint.
Fiscal adjustment process.
Fiscal affairs department.
Fiscal policy decisions.
Fiscal reaction functions.
National fiscal rules.
- This paper discusses the role of fiscal institutions, including budget rules and non-partisan agencies, in enhancing fiscal discipline. A dynamic model of fiscal policy shows that optimal institutions lack credibility unless the costs to bypass them are sufficiently high. In our model, a combination of complete budgetary transparency and strong democratic accountability suffice to establish credibility. Under incomplete budgetary transparency, accountable governments may also use institutions as a signal of competence to increase their reelection chances, which in turn erodes the penchant for excessive deficits. In light of the theory, empirical tests of the effectiveness of institutions are undertaken. The results further emphasize that analysis should pay due attention to simultaneity bias (because disciplined governments may be more likely to adopt strict institutions). Also, interactions among different fiscal institutions, and between the latter and key features of the political system need to be explored further.
- Description based on print version record.
- Debrun, Xavier.
Kumar, Manmohan S.
- Other format:
- Print Version:
- Publisher Number:
- Access Restriction:
- Restricted for use by site license.
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