Breaking the Impediments to Budgetary Reforms: Evidence from Europe
IMF Working Papers, March 1, 2008
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- Breaking the Impediments to Budgetary Reforms: Evidence from Europe
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Bibliographic details
- Authors: Ashoka Mody, Stefania Fabrizio
- Published: March 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451869439.001
Summary / Key findings
- Fiscal deficits do not help in focusing policymakers on undertaking reforms; the larger the deficit, the lower is the likelihood of reforms.
- Large deficits apparently imply strong claims on the budget and generate unwillingness to impose self-discipline.
- Countries will tend to move either to small fiscal deficits and good institutions or large deficits and weak institutions.
- Economic shocks (if they are large enough) can help build a constituency for improving budget institutions.
- If forgiving markets accommodate economic shocks, even such pressure may be insufficient to spur reform.
- Forwardlooking and credible leadership appears to be an important ingredient of the solution.
Drivers and scenarios examined
- Relationship between fiscal deficits and the likelihood of budgetary reform.
- Role of economic shocks in creating political constituencies for reform.
- Influence of market responses (forgiving markets) in reducing pressure for institutional change.
- Importance of forwardlooking and credible leadership in enabling reforms.
Policy implications and recommendations
- Reforms are less likely when deficits are large due to stronger competing claims on the budget that reduce willingness for self-discipline.
- Relying on fiscal distress alone is insufficient; large enough economic shocks may be required to build reform constituencies.
- Strengthening budget institutions likely requires leadership that is both forwardlooking and credible.
- Policymakers should be aware that market accommodation of shocks can blunt incentives for institutional reform.
Metadata and keywords
- Authors: Ashoka Mody, Stefania Fabrizio
- Date: March 1, 2008
- Pages: 31
- Series: Working Paper No. 2008/082
- Volume: 2008
- Issue: 082
- DOI: https://doi.org/10.5089/9781451869439.001
- Stock No: WPIEA2008082
- ISBN: 9781451869439
- ISSN: 1018-5941
- Subject: Budget planning and preparation, Current account deficits, Fiscal stance, Government debt management, Inflation
- Keywords: current account, government fractionalization, government ideology, rightist government, status quo, WP
IMF Working Paper — "Breaking the Impediments to Budgetary Reforms: Evidence from Europe", Ashoka Mody and Stefania Fabrizio, March 1, 2008; Working Paper No. 2008/082; DOI: https://doi.org/10.5089/9781451869439.001