Do Fiscal Rules Cause Fiscal Discipline Over the Electoral Cycle?

December 27, 2019

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Format: Chicago

Kodjovi M. Eklou, and Marcelin Joanis. Do Fiscal Rules Cause Fiscal Discipline Over the Electoral Cycle?, (USA: International Monetary Fund, 2019) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper estimates the causal effect of fiscal rules on political budget cycles in a sample of 67 developing countries over the period 1985–2007. We exploit the geographical pattern in the adoption of fiscal rules to isolate an exogenous source of variation in the adoption of national fiscal rules. Based on a diffusion argument, we use the number of other countries in a given subregion that have fiscal rules in place to predict the probability of having them at the country level. We find that in election years with fiscal rules in place, public consumption is reduced by 1.6 percentage point of GDP as compared to election years without these rules. This impact is equivalent to a reduction by a third of the volatility of public consumption in our sample. Furthermore, the effectiveness of these rules depends on their type, their institutional design, whether they have been in place for a long time and finally on the degree of competitiveness of elections.

Subject: Budget planning and preparation, Expenditure, Fiscal policy, Fiscal rules, Government asset and liability management, Public financial management (PFM)

Keywords: Balanced budget rule, Baseline result, Budget planning and preparation, Budgetary outcome, Developing Countries, Election, Election index, Election year, Elections data, Expenditure rule, Fiscal Discipline, Fiscal Rules, Global, Government asset and liability management, Low income, OLS estimate, Political Budget Cycles, Right wing, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/291
Stock No:

WPIEA2019291
ISBN:

9781513523736
ISSN:

1018-5941

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