Institutional Arrangements and Fiscal Performance: The Latin American Experience

Abstract

This paper explores the links between institutional arrangements and fiscal performance in" Latin America. We consider four measures of fiscal performance, namely expenditures, the size of fiscal deficits and debt, and the response of fiscal policy to business" fluctuations; and two institutional dimensions, namely, electoral systems and budgetary processes. " We find evidence that electoral systems characterized by a large degree of proportionality large district magnitude, tend to have larger governments, larger deficits and a more procyclical" response to the business cycle. We also find that more transparent and hierarchical budgetary" procedures lead to lower deficits and debt. Contrary to the findings of Hallerberg and von Hagen" for European countries, we find no evidence that centralized budgetary arrangements neutralize the" potentially adverse impact on fiscal deficits of a larger degree of proportionality of the electoral" system.