Budget Institutions and Fiscal Performance in Low-Income Countries

Abstract

This paper presents, for the first time, multi-dimensional indices of the quality of budget institutions in low-income countries. The indices allow for benchmarking against the performance of middle-income countries, across regions, and according to different institutional arrangements that deliver good fiscal performance. Using the constructed indices, the paper provides preliminary empirical support for the hypotheses that strong budget institutions help improve fiscal balances and public external debt outcomes; and countries with stronger fiscal institutions have better scope to conduct countercyclical policies.

Keywords: Budget deficits, Budgetary policy, Budgeting, Budgets, Business cycles, Cross country analysis, Economic models, Fiscal policy, Low-income developing countries