The information provided in this paper supplements the information presented in the main Board paper. The main paper discusses experiences in reestablishing fiscal management in post-conflict countries. On the basis of the Fiscal Affairs Department technical assistance recommendations to these countries, that paper identifies key priorities for rebuilding fiscal institutions in a post-conflict setting. This background paper provides more detailed information for the six selected countries—Afghanistan, Bosnia and Herzegovina, Democratic Republic of Congo (DRC), Lebanon, Mozambique, and Timor-Leste.
The causal relationship between growth and inequality is complex, and there have been many scholarly works to study this relationship since the seminal work of Kuznets in the 1950s. Few recent studies in this field have shown that the nature of relationship is multifaceted and non-linear. In addition to the intrinsic non-linear nature of the relationship, government and institutions play pivotal role in distributing the benefits of growth to reduce inequality. The responsiveness greatly depends upon a country’s initial conditions in terms of inequality and the nature of democracy prevailing in the country. This volume highlights the role of institutions in explaining the gulf between inequality and growth, by applying a dynamic general equilibrium framework and by utilizing econometric techniques. Econometrically two important hypotheses are tested. First, assuming there is no difference in institutions, the growth rate increases as inequality decreases. Second, assuming inequality remains unchanged, improvement in the integrity of fiscal institutions results in higher economic growth. Integrating theoretical and empirical approaches, this volume links crucial economic concepts in a novel way, and goes beyond academic analysis to suggest policy implications, and will serve as a valuable resource for scholars and policymakers alike in the fields of economic growth and development, public policy, and economic modeling.
The unprecedented rise and persistence of large-scale budget deficits in many developed and developing nations during the past three decades has caused great concern. The widespread presence of such deficits has proved difficult to explain. Their emergence in otherwise diverse nations defies particularistic explanations aimed at internal economic developments within a specific country. Fiscal Institutions and Fiscal Performance shifts emphasis away from narrow economic factors to more broadly defined political and institutional factors that affect government policy and national debt. This collection brings together new theoretical models, empirical evidence, and a series of in-depth case studies to analyze the effect of political institutions, fiscal regulations, and policy decisions on accumulating deficits. It provides a fascinating overview of the political and economic issues involved and highlights the role of budgetary institutions in the formation of budget deficits.
The Fiscal Institutions of Tomorrow, the first publication in the series Institutions for People, addresses issues of public management that are key to economic development in Latin America and the Caribbean. It presents the challenges that the countries in the region face to strengthen fiscal institutions with a view to the future and with policy recommendations. This publication serves as reference material for policymakers and economic analysts interested in studying the evolution of fiscal institutions in the region and identifying areas to improve governance.
This paper discusses experiences in reestablishing fiscal management in postconflict countries. Building fiscal institutions in postconflict countries essentially entails a three-step process: (1) creating a legal or regulatory framework for fiscal management; (2) establishing or strengthening fiscal authority; and (3) designing appropriate revenue and expenditure policies while simultaneously strengthening revenue administration and public expenditure management. Based on experiences in 14 postconflict countries, the paper reviews the challenges in rebuilding fiscal institutions in these countries, and identifies key priorities in the fiscal area following the cessation of hostilities.
The paper discusses the effectiveness of independent fiscal institutions—or fiscal councils—in taming the deficit bias that emerged in the 1970s. After a review of the main theoretical arguments and recent trends about fiscal councils, we develop a stylized model showing how a fiscal council can effectively mitigate the deficit bias even though it has no direct lever on the conduct of fiscal policy. We show that the capacity of the fiscal council to improve the public’s understanding of the quality of fiscal policy contributes to better align voters and policymakers’ incentives and to tame the deficit bias affecting well-intended governments. After mapping the model’s key features into a broad set of criteria likely to contribute to the effectiveness of a fiscal council, we use the 2014 vintage of the IMF dataset on independent fiscal institutions to assess whether existing institutions have been built to work.
This book takes an interdisciplinary look at how the institutions of intergovernmental fiscal relations are shaped, drawing on work by both academics and practitioners in the field.
Rolf R. Strauch and Jiirgen von Hagen Center for European Integration Studies (ZEI), University of Bonn; ZEI, University of Bonn, Indiana University, and CEPR The large and persistent deficits, rising levels of debt and growing levels of public spending observed in many DECO economies during the past 25 years have stimulated much theoretical and empirical research on the political economy of public finance. Although a number of issues have been studied extensively, certain areas are still at an exploratory stage and need further theorizing and thorough empirical research. During the last two decades, the theoretical debate on budgeting has been dominated by the controversy between partisan and institutionalist approaches. Within the more political-science oriented, institutionalist literature, a controversy exists between the distributive and the informational perspectives, each setting forth a distinctive organizational rationale of parliaments with different fiscal implications. The papers in this volume cover these different perspectives, extend previous models, and test their empirical validity. The papers were originally written for a conference on "Institutions, Politics, and Fiscal Policy" organized by the Center for European Integration Studies at the University of Bonn, Germany, in July 1998. The book is organized in three parts each focusing on a distinctive aspect. The first part is dedicated to the partisan perspective. The second part focuses on budget institutions. The third part consists of three case studies of institutional reform of the budget process. This book is directed to academics and practitioners alike.
This paper presents, for the first time, multi-dimensional indices of the quality of budget institutions in low-income countries. The indices allow for benchmarking against the performance of middle-income countries, across regions, and according to different institutional arrangements that deliver good fiscal performance. Using the constructed indices, the paper provides preliminary empirical support for the hypotheses that strong budget institutions help improve fiscal balances and public external debt outcomes; and countries with stronger fiscal institutions have better scope to conduct countercyclical policies.
