The Value and Reform of Budget Institutions

12 Pages Posted: 14 Feb 2012

See all articles by S. Fabrizio

S. Fabrizio

International Monetary Fund (IMF)

Ashoka Mody

International Monetary Fund (IMF) - Research Department

Date Written: March 29, 2007

Abstract

In a recent paper, we presented empirical evidence to show that strong budget institutions (rules and procedures of the budget process) were associated with more fiscal discipline even when the politics was unfavorable to such discipline. What then are the conditions under which budget institutions themselves may be improved (reformed)? We find, tentatively, that fiscal deficits do not focus the attention of policymakers on undertaking reforms. To the contrary, the larger is the deficit, the lower the likelihood of reforms. It is as if large deficits imply strong claims on the budget and, hence, create unwillingness to compromise and impose self-discipline. Countries will tend, therefore, to move to two outcomes: small fiscal deficits and good institutions or large deficits and weak institutions. The findings do suggest that economic shocks (if they are large enough) can help build a constituency for improving budget institutions.

Suggested Citation

Fabrizio, Stefania and Mody, Ashoka, The Value and Reform of Budget Institutions (March 29, 2007). Available at SSRN: https://ssrn.com/abstract=2004436 or http://dx.doi.org/10.2139/ssrn.2004436

Stefania Fabrizio (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Ashoka Mody

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-9617 (Phone)
202-589-9617 (Fax)

HOME PAGE: http://www.amody.com

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