Budget Quality and Fiscal Outcomes in Oil-Exporting Economies
Keywords:
Budgetary institutional quality, Fiscal outcome, Oil-exporting countries, System GMM
Abstract
In this paper, we investigated the effect of budget quality on fiscal outcomes in oil-exporting economies as well as the causality between the twin variables. We rely on the literature in computing an index of quality of budget including rules and procedures in budget process. The components of the index include budgetary institutional quality along five criteria: top-down budgeting, rules and controls, sustainability and credibility, comprehensiveness and transparency across the three stages of the budget process: planning and negotiation, legislative approval and implementation stages. With theoretical background from the common pool and agency phenomena, the system generalised method of moment was employed to estimate the parameters of the models and the results revealed that the quality of budget influences fiscal outcome by improving government net primary balance in oil-exporting nations. Budget institution is not what matters for external debt considerations in these countries but the overall level of institutional quality. However, the rules guiding each of the stages of budget cycle should be strengthened. Given a relatively low performance in the implementation stage, governments of oil countries must take necessary steps that would strengthen the rules guiding their budget implementations.
References
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Gollwitzer, S. (2010). Budget institutions and fiscal performance in Africa. University of Nottingham CREDIT Paper 10/02. University of Nottingham.
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Hagen, T. P. & Vabo, S. I. (2005). Political characteristics, institutional procedures and fiscal performance: panel data analyses of Norwegian local governments, 1991–1998. European Journal of Political Research, 44(1), 43 - 64
Hallerberg, M. & Ylaoutinen, S. (2010). Political power, fiscal institutions and budgetary outcomes in Central and Eastern Europe. Journal of Public Policy, 30 (Special Issue 01), 54–62.
Holtz-Eakin, D., Newey, W. & Rosen, H. S. (1988). Estimating vector autoregressions with panel data. Econometrica 56, 1371–95.
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Leal T., Pérez, J. J., Tujula, M. & Vidal, J. P. (2008). Fiscal forecasting: lessons from the literature and challenges. Fiscal Studies 29(3), 347–386.
Lledo V. & Poplawski-Ribeiro, M. (2013). Fiscal policy implementation in Sub-Saharan Africa. World Development 46, 79 –91.
Manasse, P. (2006). Procyclical fiscal policy: Shocks, rules, and institutions: A View from MARS. IMF Working Paper 06/27 (Washington: International Monetary Fund).
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Mulas-Granados, C., Onrubia, J. & Salinas-Jeme´nez, J. (2009). Do budget institutions matter? fiscal consolidation in the New EU Member States. Eastern European Economics, 47, 60–91.
Poterba, J. (1996). Budget institutions and fiscal policy in the U.S. States. NBER Working Paper 5449. Cambridge, MA: National Bureau of Economic Research.
Riascos, A. & Vegh, C. (2003). Procyclical government spending in developing countries: The role of capital market imperfections. Working paper, University of Maryland.
Roodman, D. (2008). How to do xtabond2: An introduction to “Difference” and “System” GMM in Stata. Working Paper Number 103.
Talvi, E. & Végh, C. (2005). Tax base variability and procyclical fiscal policy in developing countries. Journal of Development Economics, 78, 156–90.
Tornell, A. & Lane, P. (1999). The voracity effect. American Economic Review, 89(1), 22–46. Velasco, A. (1999). A model of endogenous fiscal deficits and delayed fiscal reforms. NBER Chapters, Fiscal Institutions and Fiscal Performance, 37–58.
Von Hagen, J. (1992). Budgeting procedures and fiscal performance in the European communities. European Economy—Economic Papers. 96. Commission of the EC, Directorate-General for Economic and Financial Affairs (DG ECFIN).
Von Hagen, J. & Harden, I. (1994). National budget processes and fiscal performance. European Economy Reports and Studies, 3, 311–418.
Von Hagen, J. & Harden, I. (1996). Budget processes and commitment to fiscal discipline. IMF Working Paper 96/78 (Washington: International Monetary Fund).
Yaru, M. A., Mobolaji, H. I., Kilishi, A. A. & Yakubu, A. T. (2013). Institutions, institutional reforms and economic development: Analytical and policy perspectives. Nigerian Journal of Economics and Social Studies.
Alberola, E. & Montero, J. (2006). Debt sustainability and procyclical fiscal policies in Latin America. Banco de Espana Working Paper No. 0611 (Madrid: Banco de Espana).
Alesina, A., Campante, F. R. & Tabellini, G. (2008). Why is fiscal policy often Procyclical? Journal of the European Economic Association, 6 (7), 1006–36.
Alesina, A. & Perotti, R. (1996). Budget deficits and budget institutions. NBER Working Paper 5556. Cambridge, MA: National Bureau of Economic Research.
Alesina, A., Hausmann, R., Hommes, R. & Stein, E. H. (1999). Budget institutions and fiscal performance in Latin America, Journal of Development Economics, 59, 253–73.
Alesina, A., & Tabellini, G. (2005). Why is fiscal policy often procyclical? (Unpublished; Milan: IGIER-Bocconi University).
Allen, R., Banerji, A. & Nabil, M. (2004). An assessment of Egypt’s budgetary institutions. ECES Working Paper No. 93, Egyptian Center for Economic Studies. Cairo.
Alt, J. E. & Lassen, D. D. (2003). Fiscal transparency and fiscal outcomes in OECD countries. Copenhagen: Economic Policy Research Unit, University of Copenhagen.
Andrews, M. (2010). How Far Have Public Financial Management Reforms Come in Africa? John F. Kennedy School of Government- Harvard University, Faculty Research Working Paper Series, RWP 10–018.
Arbatli, E., & Escolano. J. (2015). Fiscal transparency, fiscal performance and credit ratings. Fiscal Studies. 36(2): 237–270.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application in employment equations. The Review of Economic Studies 58, 277-297.
Arellano, M., & Bover, O. (1995). Another look at the instrumental variables estimation of error-components models. Journal of Econometrics, 68, 29–51.
Avellan, L. & Vuletin, G. (2015). Fiscal procyclicality and output forecast errors. Journal of International Money and Finance, 55(C), 193-204.
Balassone, F. & Kumar, M. (2007). Cyclicality of fiscal policy. Promoting Fiscal Discipline, (eds.) Manmohan S. Kumar and Teresa Ter-Minassian (Washington: International Monetary Fund).
Beetsma, R., Giuliodori, M. & Wierts, P. (2009). Planning to cheat: EU fiscal policy in real time. Economic Policy, 24(60), 753–804.
Bleamey, M. (2010). Budget institutions and fiscal performance in Africa. CREDIT Research Paper, No. 10/02, The University of Nottingham, Centre for Research in Economic Development and International Trade (CREDIT), Nottingham.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87: 11–143.
Boiciuc, L. (2015). The cyclical behaviour of fiscal policy in Romania. Procedia Economics and Finance, 32, 286–291
CAPE, (2013). Budgeting in the real world. A conference report. Centre for Aid & Public Expenditure.
Catão, L. A., & Sutton, B. W. (2002). Sovereign defaults: The role of volatility. IMF Working Papers 02/149, International Monetary Fund.
Dabla-Norris, E., Allen, R. Zanna, F., Prakash, T., Kvitradze, E., Lledo, V. Yackovlev, I. & Gollwitzer, S. (2010). Budget institutions and fiscal performance in Low-Income countries. IMF WP/10/80. Washington, DC: International Monetary Fund.
Dumitrescu, E. I. & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4),1450–1460.
El Husseiny, I. A. (2016). Budgetary institutions and fiscal performance in Egypt: Is there a link? Public Budgeting & Finance.
Fabrizio, S. &Mody, A. (2006). Can Budget Institutions Counteract Political Indiscipline? IMF WP/06/123. Washington, DC: International Monetary Fund.
Fatás, A. & Mihov, I. (2003). Government size and automatic stabilisers: international and intranational evidence,” Journal of International Economics, 55(1), 3–28.
Filc, G. & Scartascini, C. (2004). Budget institutions and fiscal outcomes: ten years of inquiry on fiscal matters at the research department of the Inter-American Development Bank,” International Journal of Public Budget, 59, 81–138.
Frankel, J. A., Vegh, C. A. & Vuletin, G. (2013). On graduation from fiscal procyclicality. NBER Working Paper No. 17619.
Frankel, J. A. & Schreger, J. (2013). Over-optimistic official forecasts in the Eurozone and fiscal rules. NBER Working Paper No. 18283.
Galí, J. & Perotti, R. (2003). Fiscal policy and monetary integration in Europe. Economic Policy, 18(37), 535–72.
Gavin,M.&Perotti, R.(1997).Fiscal policyinLatinAmerica.NBERMacroeconomics Annual 1997, Volume 12.
Gleich, H. (2002). The evolution of budget institutions in Central and Eastern European countries. Ph.D. Thesis. Bonn: University of Bonn.
Gollwitzer, S. (2010). Budget institutions and fiscal performance in Africa. University of Nottingham CREDIT Paper 10/02. University of Nottingham.
Granger, C. W. (1969). Investigating causal relations byeconometric models and cross-spectral methods, Econometrica, 37(3), 424–438.
Hagen, T. P. & Vabo, S. I. (2005). Political characteristics, institutional procedures and fiscal performance: panel data analyses of Norwegian local governments, 1991–1998. European Journal of Political Research, 44(1), 43 - 64
Hallerberg, M. & Ylaoutinen, S. (2010). Political power, fiscal institutions and budgetary outcomes in Central and Eastern Europe. Journal of Public Policy, 30 (Special Issue 01), 54–62.
Holtz-Eakin, D., Newey, W. & Rosen, H. S. (1988). Estimating vector autoregressions with panel data. Econometrica 56, 1371–95.
International Budget Partnership (2008). Open Budget Index. Washington, DC: Centre on Budget and Policy Priorities.
Jonung L. & Larch, M. (2006). Improving fiscal policy in the EU: the case for independent forecasts. Economic Policy 21(47), 491–534.
Kaminsky, G., Reinhart, C. & Végh, C. (2004). When it rains, it pours: procyclical capital flows and macroeconomic policies, NBERMacroeconomics, Annual,(eds.)KennethRogoff and Mark Gertler (Cambridge, Massachusetts: MIT Press).
Krogstrup, S. & Walti, S. (2008). Do fiscal rules cause budgetary outcomes? Public Choice. 136 (1/2), 123–138.
Leal T., Pérez, J. J., Tujula, M. & Vidal, J. P. (2008). Fiscal forecasting: lessons from the literature and challenges. Fiscal Studies 29(3), 347–386.
Lledo V. & Poplawski-Ribeiro, M. (2013). Fiscal policy implementation in Sub-Saharan Africa. World Development 46, 79 –91.
Manasse, P. (2006). Procyclical fiscal policy: Shocks, rules, and institutions: A View from MARS. IMF Working Paper 06/27 (Washington: International Monetary Fund).
Mpatswe G. K., Tapsoba, S. J. & York, R. C. (2011). The cyclicality of fiscal policies in the CEMAC region. IMF Working Paper WP/11/205 (Washington: International Monetary Fund).
Mulas-Granados, C., Onrubia, J. & Salinas-Jeme´nez, J. (2009). Do budget institutions matter? fiscal consolidation in the New EU Member States. Eastern European Economics, 47, 60–91.
Poterba, J. (1996). Budget institutions and fiscal policy in the U.S. States. NBER Working Paper 5449. Cambridge, MA: National Bureau of Economic Research.
Riascos, A. & Vegh, C. (2003). Procyclical government spending in developing countries: The role of capital market imperfections. Working paper, University of Maryland.
Roodman, D. (2008). How to do xtabond2: An introduction to “Difference” and “System” GMM in Stata. Working Paper Number 103.
Talvi, E. & Végh, C. (2005). Tax base variability and procyclical fiscal policy in developing countries. Journal of Development Economics, 78, 156–90.
Tornell, A. & Lane, P. (1999). The voracity effect. American Economic Review, 89(1), 22–46. Velasco, A. (1999). A model of endogenous fiscal deficits and delayed fiscal reforms. NBER Chapters, Fiscal Institutions and Fiscal Performance, 37–58.
Von Hagen, J. (1992). Budgeting procedures and fiscal performance in the European communities. European Economy—Economic Papers. 96. Commission of the EC, Directorate-General for Economic and Financial Affairs (DG ECFIN).
Von Hagen, J. & Harden, I. (1994). National budget processes and fiscal performance. European Economy Reports and Studies, 3, 311–418.
Von Hagen, J. & Harden, I. (1996). Budget processes and commitment to fiscal discipline. IMF Working Paper 96/78 (Washington: International Monetary Fund).
Yaru, M. A., Mobolaji, H. I., Kilishi, A. A. & Yakubu, A. T. (2013). Institutions, institutional reforms and economic development: Analytical and policy perspectives. Nigerian Journal of Economics and Social Studies.
Published
2020-03-01
Section
Articles
