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

140 Pages Posted: 28 Sep 2021 Last revised: 30 May 2023

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

Multiple version iconThere are 2 versions of this paper

Date Written: June 21, 2024

Abstract

Fiscal rules are a popular tool to improve fiscal discipline and reduce waste in public spending, 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-indifferences analysis yields three main findings. First, the fiscal rule effectively reduces operating expenditures and the probability of a current deficit. Second, there is no meaningful impact on local public goods or living standards. Third, the fiscal consolidation leads voters to be less dissatisfied with their local government and increases the probability of re-election for the incumbent party. These findings suggest that fiscal rules can reduce waste in public administration and align fiscal policy with the preferences of voters in settings, like Colombia, where electoral accountability is hampered by 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 * (June 21, 2024). 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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