Fiscal Rules, Austerity in Public Administration, and Political Accountability: Evidence from a Natural Experiment in Colombia

120 Pages Posted: 28 Sep 2021 Last revised: 19 Apr 2022

See all articles by Maria Carreri

Maria Carreri

University of California, San Diego (UCSD)

Luis R. Martinez

University of Chicago - Harris School of Public Policy

Date Written: April 15, 2022

Abstract

Fiscal rules are a promising tool to address waste in public administration, but their effectiveness and political feasibility remain unclear, particularly in weakly institutionalized settings. We leverage exogenous variation across Colombian municipalities in exposure to a fiscal rule that limits the operating expenditures of local governments. Our difference-in-differences analysis yields three main findings. First, the fiscal rule is highly effective at reducing operating expenditures and the probability of a current deficit. Second, there is no meaningful impact on local public goods, which suggests wasteful administrative spending before the reform. Third, the fiscal consolidation does not cause a political backlash. Electoral support for the party of the incumbent mayor increases and the incidence of protests weakly decreases. These findings suggest that fiscal rules can align fiscal policy with the preferences of voters in settings, like Colombia, with weak political parties and limited career concerns for local politicians.

Keywords: Fiscal rules, public administration, public goods, political accountability, decentralization

JEL Classification: H11, H72, H75, O23, D72, D73

Suggested Citation

Carreri, Maria and Martinez, Luis, Fiscal Rules, Austerity in Public Administration, and Political Accountability: Evidence from a Natural Experiment in Colombia (April 15, 2022). Available at SSRN: https://ssrn.com/abstract=3929550 or http://dx.doi.org/10.2139/ssrn.3929550

Maria Carreri

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
La Jolla, CA 92093
United States

Luis Martinez (Contact Author)

University of Chicago - Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

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