IMF Working Papers

Can Budget Institutions Counteract Political Indiscipline?

Author/Editor:

Ashoka Mody ; Stefania Fabrizio

Publication Date:

May 1, 2006

Electronic Access:

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Summary:

The budget is an expression of political rather than economic priorities. We confirm this proposition for a group of new and potential members of the European Union, finding that politics dominates. The contemporary practice of democracy can increase budget deficits through not only ideological preferences but also more fragmented government coalitions and higher voter participation. Long-term structural forces, triggered by societal divisions and representative electoral rules, have more ambiguous implications but also appear to increase budget pressures, as others have also found. However, our most robust, and hopeful, finding is that budget institutions-mechanisms and rules of the budget process-that create checks and balances have significant value even when the politics is representative but undisciplined, and when long-term structural forces are unfavorable.

Series:

Working Paper No. 2006/123

Subject:

Budget planning and preparation Expenditure Fiscal policy Fiscal stance Labor Public debt Public financial management (PFM) Unemployment rate