Book contents
- Frontmatter
- Contents
- List of Tables
- Preface
- PART ONE The Growth of Government: A Historical Perspective
- PART TWO Gains from the Growth of Public Expenditure
- PART THREE The Role of the State and Government Reform
- VII Rethinking the Role of the State
- VIII Fiscal Rules and Institutions
- IX Blueprint for Public Expenditure Reduction
- PART FOUR Recent Experiences of Countries in Reforming the Government
- Bibliography
- Author Index
- Subject Index
VIII - Fiscal Rules and Institutions
Published online by Cambridge University Press: 12 January 2010
- Frontmatter
- Contents
- List of Tables
- Preface
- PART ONE The Growth of Government: A Historical Perspective
- PART TWO Gains from the Growth of Public Expenditure
- PART THREE The Role of the State and Government Reform
- VII Rethinking the Role of the State
- VIII Fiscal Rules and Institutions
- IX Blueprint for Public Expenditure Reduction
- PART FOUR Recent Experiences of Countries in Reforming the Government
- Bibliography
- Author Index
- Subject Index
Summary
THE IMPORTANCE OF FISCAL RULES AND INSTITUTIONS
The institutional framework of a country is of particular importance for fiscal policy. Fiscal rules and institutions create the environment, the incentives, and the constraints under which policymakers and bureaucrats operate. These rules and institutions can promote smaller and more efficient governments or high and unproductive levels of public spending, high deficits, and the accumulation over time of public debt. For example, fiscal rules and institutions that establish effective budget constraints are more likely to lead to leaner and more efficient governments, while institutional frameworks that result in soft budget constraints and provide little incentive for expenditure prioritization are likely to lead to larger and less efficient governments. Several studies have concluded that small and effective governments with high-quality institutions are conducive to economic growth and development (see, for two recent examples, The World Bank, World Development Report, 1997; and Commander, Davoodi, and Lee, 1997).
We will first discuss some key institutional features that have typically contributed to sound fiscal policy and that should therefore feature prominently in the reform efforts of countries. These features are the budget process, fiscal rules, and new trends in expenditure management borrowed from the corporate sector. A transparent budgetary process that sets clear and enforceable spending ceilings that can not be easily undermined by parliament or by the spending agencies will help limit expenditure growth and fiscal deficits. Fiscal rules, and particularly constitutional limits, could be important to enforce the deficit targets envisaged in the budgetary process.
- Type
- Chapter
- Information
- Public Spending in the 20th CenturyA Global Perspective, pp. 152 - 170Publisher: Cambridge University PressPrint publication year: 2000