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Article
Publication date: 9 October 2017

Bodo Herzog

The purpose of this paper is to study the impact of transparency on the political budget cycle (PBC) over time and across countries. So far, the literature on electoral…

Abstract

Purpose

The purpose of this paper is to study the impact of transparency on the political budget cycle (PBC) over time and across countries. So far, the literature on electoral cycles finds evidence that cycles depend on the stage of an economy. However, the author shows – for the first time – a reliance of the budget cycle on transparency. The author uses a new data set consisting of 99 developing and 34 Organization for Economic Cooperation and Development countries. First, the author develops a model and demonstrates that transparency mitigates the political cycles. Second, the author confirms the proposition through the econometric assessment. The author uses time series data from 1970 to 2014 and discovers smaller cycles in countries with higher transparency, especially G8 countries.

Design/methodology/approach

Mathematical model and a respective econometric model testing.

Findings

First, the author shows in the theoretical model that higher transparency mitigates the PBC. Second, the author confirms the theoretical proposition through the econometric model. The author confirms that the countries with higher transparency have smaller budget cycles. Or technically, the author cannot reject the null-hypothesis that the budget cycles are different due to transparency.

Research limitations/implications

As explained in the paper: one issue is the data limitations in respect to the transparency measures. Data for Google are just available since 2004. Data for broadband-subscription are just on annual frequency. But both limitations can be tackled in the future. Hence, the findings are first evidence and a benchmark for future studies.

Practical implications

First, higher public transparency implies smaller budget cycles. In the end, this enhances the stability of economic and fiscal policy. Second, policy-makers have to consider the impact of higher transparency in respect to future election pledges. In a more transparent world, all voters can easily check the commitment of previous election pledges.

Social implications

Transparency helps to improve democracy and thus enhances the political credibility because it allows the voters to check the commitment of the elected policy-makers.

Originality/value

First, the author shows – for the first time – a reliance of the budget cycle on transparency. Second, the author is the first that build a new theoretical model that extends the existing literature in respect to transparency and the size of the budget cycle. Third, the author uses for the first time – in this literature – new internet-based data such as broadband-subscription and Google search data. Fourth, the author empirically proves the new hypothesis based on the new data sources.

Details

Journal of Economic Studies, vol. 44 no. 5
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 August 1997

A‐M.M. Abdel‐Rahman

Investigates the possible occurrences of patterns in macroeconomic policy targeting and instruments use in some less developed countries where unscheduled regime transfers…

Abstract

Investigates the possible occurrences of patterns in macroeconomic policy targeting and instruments use in some less developed countries where unscheduled regime transfers may occur. The patterns are held to correspond to those stipulated by Hibbs in his Partisan Theory for advanced democracies after due allowance is made for the nature of government and modes of regime transfer. Undertakes an investigation of Sudan, a country which has witnessed dramatic political changes that assumed the forms of eight alternating regimes in the shape of civilian democracies and military dictatorships since its independence in 1956. Traces, in particular, the evidence on quasi‐political business cycles in output growth and inflation; and on quasi‐political budget cycles in deficits and instruments of finance. Studies patterns on the form of use of policy instruments through reliance on monetary policy surprises. Obtains empirical results which generally point to the possible presence of eco‐political patterns similar in principle to those operable in the case of developed countries but with some distinct differences in nature and rhythm.

Details

Journal of Economic Studies, vol. 24 no. 4
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 21 October 2020

Dharendra Wardhana

The purpose of this paper is to find the relationship between local direct elections and the change in social spending, controlling for GDP per capita, revenues and…

Abstract

Purpose

The purpose of this paper is to find the relationship between local direct elections and the change in social spending, controlling for GDP per capita, revenues and wide-range socio-welfare indicators at the regional level.

Design/methodology/approach

This research uses a model of time-series cross-sectional panel data set for 33 provinces in Indonesia from 2001 to 2012.

Findings

The main finding of this research is that the political budget cycle does exist in Indonesia. Incumbents responded to the direct elections more sensitively rather than to other variables in the model. The most important variables that are significant in the model are not only direct election but also inter-governmental grants. Interestingly, the local economy (as measured by GDP per capita) does not clearly exhibit a meaningful impact.

Research limitations/implications

Although the importance of decentralisation in Indonesia is actually at the regency level, obtaining the data is really challenging. Therefore the exercise on this paper is currently limited only for the provincial level.

Practical implications

This finding conveys the message that there is large room for improvement in inter-governmental transfer formulation, more importantly to the regions where they still entail significant budget support from central government. In addition, transfers during specific periods such as elections need to be modified to avoid the misappropriation of local budget and to mitigate the adverse impact of PBC. The formulation of inter-governmental transfers is pivotal in reducing over-dependence to the central government funding and to ensure the effectiveness of budget devolved at the local level.

Originality/value

To the author’s understanding, the paper is the first to discuss the presence of the political budget cycle on social protection programs in Indonesia. The expected contribution of the current work is twofold: Firstly, the author used a recent data set hosted by the World Bank (INDO-DAPOER). Secondly, the findings are relevant to the discussion within the sphere of development studies and political science.

Details

International Journal of Development Issues, vol. 20 no. 1
Type: Research Article
ISSN: 1446-8956

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Book part
Publication date: 1 March 2021

Dewi Darmastuti and Dyah Setyaningrum

This study aims to investigate the use of discretionary spending, especially by incumbents, to win the election and whether incumbents can take more advantage of such…

Abstract

This study aims to investigate the use of discretionary spending, especially by incumbents, to win the election and whether incumbents can take more advantage of such spending than the new local government heads. This study also examines the political monitoring effect in suppressing discretionary spending. By using panel regression on 225 local governments during 2013–2016, the results indicate that political motive positively affects discretionary spending proportion ahead of the election. Following the public choice theory that although local government heads act on the interests of voters, their primary motivation is personal interest. Incumbent’s victory does not affect total discretionary spending and the financial assistance expenditure/transfer but has a significant positive effect on grant and social assistance spending. It generally supports Corruption Eradication Commission’s allegations of “returning the favor” is carried out by elected heads in one year following the election. But, it shows that incumbents are more able to utilize grants and social assistance spending than the new local government heads. Political monitoring from the opposition party has proven to have a direct negative effect on discretionary spending proportion. Tracking of the one year after the election should be done to prevent misuse of discretionary spending for incumbent political interests. The results of this study are expected to provide input to regulators to develop more comprehensive regulation, for example, strict sanctions for violations related to accountability for the use of such funds to limit the opportunistic behavior of the local government heads.

Details

Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics
Type: Book
ISBN: 978-1-83867-359-8

Keywords

Content available
Article
Publication date: 16 August 2021

Mattias Haraldsson

The aim of this paper is to explore whether and how external, political, financial and governance factors influence capital expenditure deviations in the Swedish municipal…

Abstract

Purpose

The aim of this paper is to explore whether and how external, political, financial and governance factors influence capital expenditure deviations in the Swedish municipal water and sewerage sector and to capture the consequences of municipal organisational fragmentation.

Design/methodology/approach

Panel data analysis of 238 municipalities and 1,190 observations of capital expenditure deviations over five years (2013–2017).

Findings

Apart from a low overall on average execution rate of 69%, the Swedish municipal water and sewerage sector seems generally sensitive to external stakeholder pressure for budget compliance, but not to the political power situation. Further, political signalling incentives generally do not influence capital expenditure deviations in the contexts of municipal corporations and cooperations, which supports the idea that these governance forms insulate the organisation from general stakeholder pressure and political control.

Practical implications

The practical implication is that large and constant capital expenditure deviations call for change in regulation and governance of the municipal sector. However, in countries such as Sweden, where externalising services to municipal corporations and cooperations is significant, this discussion needs to address the consolidated level of the municipality. Otherwise, a large share of the investment budget will be unscrutinised. More closely related to the Swedish water and sewerage sector, the risks associated with a constantly low execution rate should be analysed and addressed.

Originality/value

First, this paper contributes to the knowledge of aggregated capital expenditure deviations in general and specifically within the municipal water and sewerage sector. Second, analysing the municipal governance landscape adds further insights and suggestions on why budget performance varies. The results especially highlight that the governance forms of corporations and cooperations change the relation to political signalling incentives.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1096-3367

Keywords

Content available
Article
Publication date: 3 June 2020

Yuliya Kasperskaya and Ramon Xifré

The objective of this study is to analyze the role that budgetary analytical capacity (BAC) plays for fiscal discipline in a sample of Eurozone countries in the postcrisis period.

Abstract

Purpose

The objective of this study is to analyze the role that budgetary analytical capacity (BAC) plays for fiscal discipline in a sample of Eurozone countries in the postcrisis period.

Dessign/methodology/approach

Building on the policy capacity literature, an index for the BAC is constructed by including OECD budgetary data from three dimensions: reliability of projections, openness to legislative scrutiny and transparency. The proposed BAC index is validated by checking that larger values of the index are associated with the higher fiscal discipline scores across countries.

Findings

Controlling for the economic cycle, BAC index is positively associated with fiscal discipline. The association is stronger for the index as a whole than for the three separate dimensions.

Research limitations/implications

The study is done on the limited sample of countries, and it is not feasible to validate results over time.

Practical implications

Budgetary policymakers can improve fiscal discipline by enhancing the three pillars that support the BAC.

Social implications

Stronger BAC can help to improve the quality of public decision-making and overcome political opportunism.

Originality/value

This is the first study that introduces the concept of BAC, makes it operational and suggests its relevance for supporting fiscal discipline.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 32 no. 3
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 1 March 2014

Tilman Slembeck, Armin Jans and Thomas Leu

Financial sustainability requires governments to run sufficiently large primary surpluses going forward to cover the cost of servicing its debt budgets to balance in the…

Abstract

Financial sustainability requires governments to run sufficiently large primary surpluses going forward to cover the cost of servicing its debt budgets to balance in the long run. In democracies, politicians who strive for reelection often tend to systematically violate this tenet. This paper discusses two types of “anchors” that may be used to cope with this problem by limiting the room for new and excessive public debt. First, we analyze national constitutional safeguards on the basis of the “debt brake” in Switzerland and Germany. Second, we discuss international institutions to maintain financial discipline, referring to the Maastricht-criteria. These anchors are designed to allow policymakers to commit to policies that provide long term financial stability and sustainability of public finances. However, as the recent crises have shown, the problem of time inconsistency in policy making remains, especially when anchors are weak. Therefore, the paper discusses the circumstances under which institutional anchors may help to restrict politician behavior to promote sustainability of public finances. We conclude by indentifying three conditions required for the proper functioning of collective anchors in the context of public finances.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 26 no. 1
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 1 March 2014

Alessandro Giosi, Silvia Testarmata, Sandro Brunelli and Bianca Staglianò

Recently many European countries have incurred crises in public finance despite the fact that EU institutions have pushed the national governments toward the…

Abstract

Recently many European countries have incurred crises in public finance despite the fact that EU institutions have pushed the national governments toward the sustainability of public finance with compulsory and voluntary rules regarding fiscal governance. This paper investigates the relations between the quality of fiscal governance and the financial virtuosity of national fiscal policy. We proposed a general framework for analyzing the fiscal governance issue and we empirically tested the correlation between the dimensions of fiscal governance and the budgetary performance of EU countries. The results showed a positive correlation between the quality of fiscal governance in the EU countries and financial surplus in the period concerned. However further investigations are needed and an effort should be made to collect uniform data on fiscal governance in the European Union.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 26 no. 1
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 28 June 2021

Moira Catania, Mark J. Baimbridge and Ioannis Litsios

The objective of this study is to understand the budgetary role of national legislatures in euro area (EA) countries and to analyse implications for fiscal discipline.

Abstract

Purpose

The objective of this study is to understand the budgetary role of national legislatures in euro area (EA) countries and to analyse implications for fiscal discipline.

Design/methodology/approach

Building on the budget institutions literature, a legislative budgetary power index for all the 19 euro area (EA) countries is constructed using Organisation for Economic Co-operation and Development (OECD) and European Commission data as well as data generated from questionnaires to national authorities. A two-way fixed effects panel data model is then used to assess the effect of legislative budgetary power on the budget balance in the EA during 2006–2015.

Findings

Overall, in the EA, formal legislative powers vis-à-vis the national budgetary process are weak, but there is more legislative involvement in Stability and Growth Pact (SGP) procedures, and legislative budgetary organisational capacity is generally quite good. In contrast to the traditional view in the budget institutions literature, this study’s empirical findings show that strong legislative budgetary power does not necessarily result in larger budget deficits.

Research limitations/implications

Data on legislative budgeting were available from different sources, and time series data were very limited.

Practical implications

There is scope to improve democratic legitimacy of the national budgetary process in the EA, without necessarily jeopardising fiscal discipline.

Originality/value

The constructed legislative budgetary power index covers all the 19 EA countries and has a broad scope covering various novel institutional characteristics. The empirical analysis contributes to the scarce literature on the impact of legislative budgeting on fiscal discipline.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 25 September 2020

A B M Mahbub Alam and Manzurul Alam

This study examines how resource dependency affects municipal budgetary process; specifically, it investigates how politically aligned resource sharing between different…

Abstract

Purpose

This study examines how resource dependency affects municipal budgetary process; specifically, it investigates how politically aligned resource sharing between different levels of government along with clientelism interferes with the budgetary process of municipal organizations in developing countries.

Design/methodology/approach

The paper adopts a qualitative approach to study two municipal organizations in Bangladesh. The qualitative data are collected from semi-structured interviews with key organizational members. Besides, the study also relies on various publicly available documents and the Local Government Acts to complement the interview data.

Findings

The findings of the study divulge dependence on partisan aligned nonprogrammable government funds poses significant problems for municipal organizations in carrying out their budgetary process. Clientelism and informal negotiations of incumbent political leaders are found to play a vital role in such resource sharing decisions. The consequent uncertainties in getting funds have the potentials of interrupting the budgetary process at the organizational level. In some cases, budgets do not appear to be useful as a management tool for guiding organizational activities.

Research limitations/implications

Like other qualitative studies, the results of these case studies are not generalizable because their interpretations are highly dependent on the context of the research sites.

Practical implications

Despite the limitation of a case study research, the results of this study are useful to deepen our understanding of how uncertainty in resource sharing creates clientele behavior and interferes with the organizational budget. Such an understanding helps practitioners and policymakers devise a sound resource sharing mechanism for effective delivery of municipal services on a sustainable basis.

Originality/value

This study provides insight into how precarious central government transfers and clientelism interfere with local governments' budgetary process.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1096-3367

Keywords

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