Can Budget Institutions Counteract Political Indiscipline?

Abstract:     
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.

Number of Pages in PDF File: 53

Keywords: Fiscal policy, budget institutions, electoral rules, government fragmentation, government ideology, ethnic fractionalization, voter turnover

JEL Classification: D70, E60, H60

working papers series