Breaking the Impediments to Budgetary Reforms: Evidence from Europe

March 1, 2008

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Format: Chicago

Ashoka Mody, and Stefania Fabrizio. Breaking the Impediments to Budgetary Reforms: Evidence from Europe, (USA: International Monetary Fund, 2008) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Under what conditions are budget institutions likely to be strengthened? We find that fiscal deficits do not help in focusing policymakers on undertaking reforms. To the contrary, the larger the deficit, the lower is the likelihood of reforms. Large deficits apparently imply strong claims on the budget and, hence, generate unwillingness to impose self-discipline. As such, 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. However, if forgiving markets accommodate economic shocks, even such pressure may be insufficient. Forwardlooking and credible leadership appears to be an important ingredient of the solution.

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

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/082
Stock No:

WPIEA2008082
ISBN:

9781451869439
ISSN:

1018-5941

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