Budget Processes and Commitment to Fiscal Discipline

42 Pages Posted: 15 Feb 2006

See all articles by Jürgen von Hagen

Jürgen von Hagen

University of Bonn - Institute of Economic Policy; Centre for Economic Policy Research (CEPR)

Ian Harden

affiliation not provided to SSRN

Date Written: July 1996

Abstract

This paper develops a political-economy model of the budget process focusing on the common pool problem of the public budget. We show that the externality arising from the fact that public spending tends to be targeted at individual groups in society while the tax burden is widely dispersed creates a bias towards excessive expenditures and debt. This bias can be reduced by introducing elements of centralization in the budget process, that is, institutional structures that strengthen a comprehensive view of the budget over the particularistic view of the spending ministers and the members of parliament. Using examples from EC countries, we show how budget processes lack or possess such elements. We then present empirical evidence supporting the claim that centralizing elements reduce the deficit bias. The last section concludes with models for reform of the budget process.

JEL Classification: D71, D73, H61, H62, H72

Suggested Citation

von Hagen, Jürgen and Harden, Ian, Budget Processes and Commitment to Fiscal Discipline (July 1996). IMF Working Paper, Vol. , pp. 1-42, 1996. Available at SSRN: https://ssrn.com/abstract=882975

Jürgen Von Hagen (Contact Author)

University of Bonn - Institute of Economic Policy ( email )

Adenauerallee 24
D-53113 Bonn
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ian Harden

affiliation not provided to SSRN

No Address Available

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