Breaking the Impediments to Budgetary Reforms: Evidence from Europe
International Monetary Fund (IMF)
International Monetary Fund (IMF) - Research Department
Economics & Politics, Vol. 22, Issue 3, pp. 362-391, November 2010
In addition to the known effects of government fractionalization, we find that larger deficits are associated with a reduced likelihood of budgetary reforms. In a war of attrition setting, larger deficits signify stronger entitlements on the budget, generating unwillingness to impose self-discipline. A sense of crisis emerges only when macroeconomic imbalances appear. However, while a crisis creates the opportunity for reform, policy credibility is important for effectively using that opportunity. We find that one way of establishing credibility is by undertaking measures in opposition to the government's known ideological position – these presumably signal motivation by broader social welfare considerations.
Number of Pages in PDF File: 30Accepted Paper Series
Date posted: October 4, 2010
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