We evaluate here the effects of fiscal institutions on fiscal performance. The previous chapter catalogued the norms and rules found at different stages of the budget process for European Union countries from 1985 through 2004. It created indices to match the theoretical expectations detailed in Chapter 2. The delegation index tests the proposition that the same sort of centralization of the budget process is appropriate in all states. According to the fiscal governance approach, the delegation index should matter most in countries with low ideological distances and low office-seeking competition. In countries with high ideological distances and high office-seeking competition, the fiscal target and contract indices should be most significant.

The most common way to measure fiscal discipline is to look at some sort of measure of the gross debt burden or the budget balance. Consistently with these studies, we expect the various indices to matter most for changes in the gross debt burden over time as well as in the overall budget balance.

While the results confirm that the delegation indices matter most for expected delegation states and the contracts indices the most for expected contract states, there is an important finding about the effectiveness of those institutions that emerges. The very effectiveness of a given set of fiscal institutions can be undermined if the underlying ideological distance changes. That is, institutions that seem to guarantee a strong role for the finance minister work when there is a one-party government but become increasingly ineffective as policy differences among coalition partners increase.