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
There are 2 versions of this paper
Fiscal Rules, Austerity in Public Administration, and Political Accountability: Evidence from a Natural Experiment in Colombia *
Fiscal Rules, Austerity in Public Administration, and Political Accountability: Evidence from a Natural Experiment in Colombia
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: Suggested Citation