The Economic Effects of Constitutional Budget Institutions

31 Pages Posted: 20 May 2011

See all articles by Stefan Voigt

Stefan Voigt

University of Hamburg - Institute of Law & Economics; CESifo (Center for Economic Studies and Ifo Institute)

Lorenz Blume

Phillips University Marburg

Date Written: 2011

Abstract

There is a well-established literature analyzing the effects of fiscal institutions on fiscal policy variables such as budget deficits or accumulated government debt. We combine this literature with the emerging field of positive constitutional economics, which deals with the economic effects of constitutional rules. The paper addresses three questions: (1) Do budget provisions that are explicitly spelled out in a country’s constitution have any significant effect on fiscal policy? (2) Does the transparency, or lack thereof, of the budget process have any significant effect on fiscal policy? and (3) Do these two variables have an impact on other variables such as government effectiveness and productivity? We find that constitutionally entrenched spending limits are correlated with lower total government expenditure and that the transparency of a nation’s budget is correlated with higher government effectiveness as well as lower corruption. If anything, the deficit limits entrenched in the Maastricht Treaty are correlated with higher, rather than lower, overall government expenditure.

Keywords: Fiscal Policy, Deficit, Constitutional Debt Rules, Transparency of Budget, Positive Constitutional Economics

JEL Classification: D70, E60, H61, H62, P51

Suggested Citation

Voigt, Stefan and Blume, Lorenz, The Economic Effects of Constitutional Budget Institutions (2011). Available at SSRN: https://ssrn.com/abstract=1839428 or http://dx.doi.org/10.2139/ssrn.1839428

Stefan Voigt (Contact Author)

University of Hamburg - Institute of Law & Economics ( email )

Johnsallee 35
Hamburg, 20148
Germany
+49-40-428385782 (Phone)
+49-40-428386794 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Lorenz Blume

Phillips University Marburg ( email )

Am Plan 2
Marburg, D-35037
Germany

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