Fiscal Rules and the Compliance debate: Why do Countries adopt Rules and fail to comply?

Martin Wafula Nandelenga () and Mark J Ellyne ()
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Martin Wafula Nandelenga: University of Cape Town
Mark J Ellyne: University of Cape Town

No 117, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: We study the compliance with fiscal rules via various national numeric rules. Based on 20 sub-Sahara African countries with 57 fiscal rules in force from 1997 to 2016, our analysis identifies determinants among the rule specific characteristics, as well as their macroeconomic and political environments. To meet the objectives of our study, we employ a logistic model. Our analysis reveals that, while the average compliance rate is around 54 percent, there is significant heterogeneity among both individual rules and national compliance rates. The analysis shows that the debt rule has a higher probability of compliance compared to balanced budget and revenue rules, respectively. Furthermore, the analysis shows that rules supported with independent monitoring institutions, as well as those covering the central government, have a higher probability of compliance. Moreover, the findings show that GDP per capita and grants enhance the probability of compliance, while corruption increases a country’s probability of non-compliance. To address endogeneity that may arise in our analysis, we employ an IV Probit model, and our results still stand.

Keywords: Numeric Fiscal Rules; Compliance; Deficit bias; institutions (search for similar items in EconPapers)
JEL-codes: E61 E62 H62 H68 (search for similar items in EconPapers)
Date: 2024-10
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Published in ERSA Working Paper Series, October 2024

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Persistent link: https://EconPapers.repec.org/RePEc:rza:ersawp:117

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