Do Fiscal Rules Cause Fiscal Discipline Over the Electoral Cycle?
IMF Working Papers, December 27, 2019
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- Do Fiscal Rules Cause Fiscal Discipline Over the Electoral Cycle?
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Bibliographic details
- Authors: Kodjovi M. Eklou, Marcelin Joanis
- Published: December 27, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513523736.001
Summary findings
- Sample: 67 developing countries over the period 1985–2007.
- Main causal finding: 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.
- Effect magnitude: This impact is equivalent to a reduction by a third of the volatility of public consumption in the sample.
- Effect heterogeneity: The effectiveness of fiscal rules depends on their type, their institutional design, whether they have been in place for a long time, and on the degree of competitiveness of elections.
Methodology
- Identification strategy: Exploits the geographical pattern in the adoption of fiscal rules to isolate an exogenous source of variation in the adoption of national fiscal rules.
- Instrumental variable: Uses 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, based on a diffusion argument.
- Empirical focus: Political budget cycles and public consumption around election years.
Policy-relevant insights
- Fiscal rules can causally reduce politically driven increases in public consumption in election years.
- Design features and longevity matter: type of rule, institutional design, and how long a rule has been in place influence effectiveness.
- Political context matters: greater competitiveness of elections alters the impact of fiscal rules on election-year fiscal outcomes.
Metadata and classification
- Subjects: 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: 2019
- Issue: 291
- Series: Working Paper No. 2019/291
- DOI: https://doi.org/10.5089/9781513523736.001
- Stock No: WPIEA2019291
- ISBN: 9781513523736
- ISSN: 1018-5941
Source: IMF Working Paper "Do Fiscal Rules Cause Fiscal Discipline Over the Electoral Cycle?" by Kodjovi M. Eklou and Marcelin Joanis, December 27, 2019.
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- Working Paper