Budget Practices and Procedures Database. The Role of the IDB and Preliminary Results

1. Budget Practices and Procedures Database.The Role of the IDB and Preliminary Results Carlos Scartascini* Prepared for presentation at the meeting of the Public Policy and Transparency Network on Development Effectiveness and Results-Based Budget Management Washington DC, May 23-24, 2005 * Based on joint work with Gabriel Filc. Contact info: carlossc@iadb.org

2. The Budget Practices and Procedures Survey. What have we learnt? • The role of the IDB • The survey • The long and short versions • The role of the survey so far • “Common practices” • For example, comparison of the structure of the Central Budget Offices, their responsibilities and attributes • Test of hypotheses. • For example, the relationship between fiscal Institutions and fiscal outcomes: Fiscal rules, hierarchy, and transparency, and government deficits. • Conclusions • The survey provides an invaluable source of information for policy-makers, multilateral institutions, and researchers • Updates are still needed

3. The role of the IDB.A multidepartmental effort • The IDB got involved in the later stages of development of the survey, providing feedback on some of the questions and format of the survey (Research Department). • Given the relevance of the survey, the IDB decided to get involved to ensure a complete and comparable set of data for all its borrowing members. • OVE (with funds from the Spanish Cooperation) financed the translation of the survey and the collection of the responses. • OVE also helped to coordinate (along with the Regional Departments) the collection of the data, contacting country authorities and providing feedback and support when necessary.

4. The role of the IDB.The “long” and “short” versions • The collection of the information has had its difficulties. • While some countries have responded promptly, others have not or have provided incomplete surveys. • Given the low rate of response received on the “long version” and given our interest to have information on at least a subset of questions for writing this year IPES (RES/SDS/OVE), a shorter version was developed focusing on questions related to fiscal rules and transparency. • While the long version has 359 questions, the short has only 22. • Data from the survey, either from the long or short versions, has already been used in several papers presented at meetings organized by RES and RE1 at the IDB and at international forums (e.g., Seminario Regional de Política Fiscal).

5. “Long-version” Survey Argentina Bolivia Chile Colombia México Paraguay República Dominicana Suriname Uruguay “Short-version” Survey Perú Brasil El Salvador Venezuela Guatemala Ecuador Panamá Costa Rica Honduras Nicaragua The role of the IDB. Country responses • So far, we have received responses from the following countries:

6. PREPARATION Executive Executive Central Budget Office Ministries and Gov. Org. Legislative Control Inst. Ministries and Gov. Org. Budget Office Budget Bill Budget Law The survey covers the different stages of the Budget Process in its entirety. EXECUTION AND CONTROL APPROVAL Legislative Budget Bill

7. PREPARATION Executive Central Budget Office Ministries and Gov. Org. “Common Practices”. Example 1: Size of the Central Budget Office How many professionals are employed by the central budget authority /office? Developed Countries Developing Countries Latin American Countries

8. PREPARATION Executive Central Budget Office Ministries and Gov. Org. “Common Practices”.Ex. 2: The Central Budget Office in the Bargaining Who has the last word? How are disputes between Ministries and the central budget authority resolved? Developed Countries Developing Countries Latin American Countries

9. Legislative Branch Control Organisms Ministries and Gov. Org. Budget Office “Common Practices”. Ex. 3: Central Budget Office Responsibilities EXECUTION AND CONTROL Does the Central Budget Authority conduct reviews or evaluations of budgeted funds or government programs? Developed Countries Developing Countries Latin American Countries

10. Testing theories.Fiscal institutions and fiscal outcomes • Data from the survey can help us to test those hypotheses that relate fiscal results (deficits) with fiscal and budgetary institutions. • Basically, that countries with more stringent fiscal rules, more hierarchical budget procedures and more transparent budget processes should present better primary fiscal balances (lower primary deficits). • Fiscal rules: laws and/or regulations which establish ex ante constraints on deficits and/or debt may be conducive to fiscal discipline. • Hierarchical procedures: (in contrast to more “collegial” procedures) tend to reduce the incidence of the commons problem and give primacy in the bargaining over the budget to those agents with political incentives to keep finances under control. • Transparent procedures: should lead to more fiscal discipline as they could increase the chances of enforcement. Even the most stringent fiscal laws can be circumvented if budget documents are unintelligible and unrelated to the real fiscal situation.

11. Testing theories.Fiscal institutions and fiscal outcomes • Following the work by Alesina, et al (1998) and Stein, et al (1999) we constructed a more complete index and several sub-indexes. • Composite index (INDEX) • Fiscal rules (FISCRULES) • Fiscal limits (FISCLIMITS) • Medium Term Fiscal Frameworks (MTFF) • Borrowing limits (BORRCONST) • Reserve Funds (RESERVFUND) • Hierarchical procedures (HIERARCHICAL) • Within the Executive Branch (RESTMINS) • Executive-Legislative relations (RESTLEGS) • Cash management (CASHMANAG) • Transparent procedures (TRANSPARENCY)

12. INDEX Fiscal Rules Hierarchical Transparency Developing Countries 2.0 0.6 2.7 0.3 Latin American Countries 1.6 2.4* 2.2 0.2 Testing theories.Fiscal institutions and fiscal outcomes • Preliminary evidence seems to indicate that a country within the group with high scores would have a more positive primary fiscal balance than a country within the group with low scores. • The following table shows the absolute value of the difference on primary fiscal balances as percentage of GDP between countries with the average high and low scores. For example, the cell marked with * indicates that a country within the group with more stringent fiscal rules would present on average a fiscal balance almost 2.4% better than a country within the other group. • The regression analysis shows very similar results. More stringent fiscal rules and more hierarchical processes seem to be associated with better fiscal results, as it can be observed in the following figures.

13. Fiscal institutions and fiscal outcomes. Composite index

14. Fiscal institutions and fiscal outcomes.Fiscal rules index

15. Fiscal institutions and fiscal outcomes Hierarchical rules index

16. Conclusions … • Having a complete database will help Budget Directors to compare their common practices with countries of similar development and historical origin as well as with the OECD countries. • It will help researchers to have better empirical basis for their analysis. • Updates and changes are still needed: • We should ensure the largest rate of response • We should capture those budget practices and procedures that are the most relevant for policy purposes • We should find the right balance between information on formal structures and informal practices. • Once we get that, we will be able to move towards the analysis of best practices. • Data and related information will be available at:http://www.iadb.org/ove/

17. Budget Practices and Procedures Database.The Role of the IDB and Preliminary Results Carlos Scartascini* Prepared for presentation at the meeting of the Public Policy and Transparency Network on Development Effectiveness and Results-Based Budget Management Washington DC, May 23-24, 2005 * Based on joint work with Gabriel Filc. Contact info: carlossc@iadb.org