Do fiscal responsibility laws matter? Evidence from emerging market economies suggests not

Abstract

This paper asks whether the adoption of fiscal responsibility laws (FRLs) has improved fiscal performance in nine emerging market economies, as measured by developments in their key fiscal balances. Examining these economies alone, their fiscal performance improved on average between the period before FLRs were adopted and the period after they were adopted. However, emerging market economies that did not adopt FLRs also experienced improvements in their fiscal performance around the same time. The finding suggests that the better fiscal performance in the nine emerging market economies resulted from something other than the adoption of FLRs.

Keywords:

• fiscal responsibility laws
• fiscal policy

JEL classification:

• H60
• H61
• H62

Notes

1. The database is incomplete in that not all observations for all countries begin in 1990. The countries and respective sample periods are: Argentina, 1991–2007; Bolivia, 1997–2007; Brazil, 1997–2007; China, 1997–2007; Colombia, 1990–2001; Côte d’Ivoire, 1990–2007; Ecuador, 1994–2007; India, 1990–2007; Indonesia, 1993–2007; Jordan, 1990–2007; Lebanon, 1997–2007; Mexico, 1990–2007; Nigeria, 1990–2007; Pakistan, 1994–2007; Panama, 1990–2007; Peru, 1991–2007; Philippines, 1990–2007; Poland, 1994–2007; Russia, 1997–2007; South Africa, 1990–2007; Sri Lanka, 1990–2007; Thailand, 1997–2007; Turkey, 1990–2007; Uruguay, 1990–2007; and Venezuela, 1990–2007.

2. The adoption dates of the FRLs are based on Corbacho and Schwartz (2007).

3. This methodology was recently employed by Ball and Sheridan (2005) and Gonçalves and Salles (2008) in their assessments of the role of inflation targeting regimes in bringing down inflation.

4. See Barnett and Ossowski (2003) for a discussion of the complications in assessing fiscal outcomes for oil‐exporting countries.