The effects of fiscal and monetary discipline on budgetary outcomes

Date

2007

Authors

Neyapti, B.
Ozgur, S.

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Abstract

This article extends the model of Von Hagen and Harden that analyzed the impact of fiscal discipline on budgetary outcomes. We modify the model by adding monetary discipline to interact with fiscal discipline in order to analyze the effects of both on budgetary outcomes. The model predicts that while both inflation and budget deficits are negatively associated with fiscal discipline, they may be positively associated with monetary discipline, proxied by central bank independence. This result obtains due to optimizing agents internalizing the burden of spending: inflation. Although not conclusive due to data limitations, empirical findings also support these predictions. (JEL D73, E58, H61, H72). © 2007 Western Economic Association International.

Source Title

Contemporary Economic Policy

Publisher

Wiley-Blackwell Publishing, Inc.

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Published Version (Please cite this version)

Language

English