The Impact of Institutional Quality on Fiscal Discipline: An Analysis of OECD Countries

Year 2025, Volume: 33 Issue: 63, 31 - 51

Gamze Çimen , Ömer Faruk Biçen

https://doi.org/10.17233/sosyoekonomi.2025.01.02

Abstract

Indicators of institutional quality are based on six different indices published by the World Bank in 1996 within the framework of Universal Governance Indicators. These indicators have significant effects on many financial variables. Fiscal discipline can also be affected by indicators of institutional quality. Based on this, the study investigated the impact of "government effectiveness" on fiscal discipline in OECD countries using autoregressive panel data analysis estimation methods with 2009-2021 period data. According to the analysis results, the increase in the value of government effectiveness affects fiscal discipline negatively and significantly. This result shows that as government effectiveness increases, the share of public debt stock in gross domestic product, an indicator of fiscal discipline, will decrease. A definite conclusion could not be reached regarding the non-linear relationship between the two variables.

Keywords

Fiscal Discipline, Institutional Quality, Government Effectiveness, Autoregressive Panel Data Model, OECD Countries

Kurumsal Kalitenin Mali Disiplin Üzerindeki Etkisi: OECD Ülkeleri Örneği

Abstract

Kurumsal kaliteye ilişkin göstergeler Dünya Bankası tarafından 1996 yılında Evrensel Yönetişim Göstergeleri çerçevesinde yayınlanan altı farklı endekse dayanmaktadır. Bu göstergelerin birçok mali değişken üzerinde önemli etkileri bulunmaktadır. Mali disiplin de kurumsal kaliteye ilişkin göstergelerden etkilenebilmektedir. Buradan hareketle çalışmada, 2009-2021 dönemi verileri ile otoregresif panel veri analizi tahmin yöntemleri kullanılarak OECD ülkelerinde “hükümet etkinliği”nin mali disiplin üzerindeki etkisi araştırılmıştır. Analiz sonuçlara göre, hükümet etkinliği değerindeki artış, mali disiplini negatif ve anlamlı bir şekilde etkilemektedir. Bu sonuç hükümet etkinliği arttıkça mali disiplinin bir göstergesi olan kamu borç stokunun gayri safi yurtiçi hasıladaki payının azalacağını göstermektedir. İki değişken arasındaki doğrusal olmayan ilişkiye yönelik ise kesin bir sonuca ulaşılamamıştır.

Keywords

Mali Disiplin, Kurumsal Kalite, Hükümet Etkinliği, Otoregresif Panel Veri Analizi, OECD Ülkeleri

References

• Acosta, A.M. & M. Coppedge (2001), “Political Determinants of Fiscal Discipline in Latin America, 1979-1998”, The International Congress of the Latin American Studies Association, Marriot Wardman Park Hotel, Washington.
• Afonso, A. et al. (2006), “Public Sector Effıciency Evidence for New EU Member States and Emergıng Markets”, Working Paper Series, 581, 4-48.
• Anderson, T.W. & C. Hsiao (1982), “Formulation and Estimation of Dynamic Models Using Panel Data”, Journal of Econometrics, 18(1), 47-82.
• Annett, A. (2002), “Politics, Government Size and Fiscal Adjustment in Industrial Countries”, IMF Working Paper, 2(162), 2-36.
• Arellano, M. & O. Bover (1995), “Another Look at the Instrumental Variable Estimation of Error-Components Models”, Journal of Econometrics, 68(1), 29-51.
• Arellano, M. & S. Bond (1991), “Some Test of Specification for Panel Data: Monte Carlo Evidence and An Application to Employment Equations”, The Review of Economic Studies, 58(2), 277-279.
• Baltagi, B.H. (2005), Econometric Analysis of Panel Data, West Sussex: John Wiley and Sons.
• Blundell, R. & S. Bond (1998), “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models”, Journal of Econometrics, 87(1), 115-143.
• Çağlayan-Akay, E. (2015), “Dinamik Panel Veri Modelleri”, in: S. Güriş (ed.), Stata ile Panel Veri Modelleri (81-104), İstanbul: Der Yayınları.
• Debrun, X. (2007), “Tying Hands is not Commitment: Can Fiscal Rules and Institutions Really Enhance Fiscal Discipline?”, Bruegel Working Paper, 1, 2-41.
• Dhikru, A.Y. & A.O. Adeoye (2019), “Nigerian State and the Crisis of Governance: A Critical Exposition”, Sage Open Journals, 9(3), 1-10.
• Eneji, M.A. et al. (2022), “Impact of Governance on Fiscal Discipline and Illicit Financial Flows in Nigeria”, Net Journal of Social Sciences, 10(2), 19-31.
• Ezzat, A. & R. Hosni (2019), “Budget Deficit Volatility, Institutional Quality and Macroeconomic Performance”, International Journal of Euro-Mediterranean Studies, 12(2), 21-40.
• Glennerster, R. & Y. Shin (2008), “Does Transparency Pay?”, IMF Economic Review, 55, 183-209.
• Hsiao, C. (2003), Analysis of Panel Data, New York: Cambridge University Press.
• Imaginário, J. & M.J. Guedes (2020), “Governance and Government Debt”, Risk Governance & Control: Financial Markets & Institutions, 10(3), 34-49.
• Keita, K. & C. Turcu (2019), “On Promoting Fiscal Discipline The Role of Exchange Rate Regimes, Fiscal Rules and Institutions”, Policy Research Working Paper, 8964, 2-34.
• Kraay, A. & M. Mastruzzi (2010), “The Worldwide Governance Indicators: Methodology and Analytical Issues”, Draft Policy Research Working Paper, 1-27.
• La Porta, R. et al. (1999), “The Quality of Government”, Journal of Law, Economics, & Organization, 15(1), 222-279.
• Lavigne, R. (2006), “The Institutional and Political Determinants of Fiscal Adjustment”, Bank of Canada Working Paper, 1-42.
• Matei, A. & C. Drumasu (2015), “Corporate Governance and Public Sector Entities”, Procedia Economics and Finance, (26), 495-504.
• Montes, G.C. et al. (2019), “Fiscal Transparency, Government Effectiveness and Government Spending Efficiency: Some International Evidence Based on Panel Data Approach”, Economic Modelling, 79, 211-225.
• Musa, K. et al. (2023), “Public Debt, Governance, and Growth in Developing Countries: An Application of Quantile via Moments”, Mathematics, 11(650), 2-13.
• Nguyen, T.A.N. & T.T.H. Luong (2021), “Fiscal Policy, Institutional Quality, and Public Debt: Evidence from Transition Countries”, Sustainability, (13), 2-15.
• OECD (2023a), Our Global Reach: Member Countries, <https://www.oecd.org/about/>, 29.03.2023.
• OECD (2023b), General Government Debt, <https://data.oecd.org/gga/general-government-debt.htm>, 14.03.2023.
• Otinche, S. I. (2016), “Discuss on Fiscal Discipline and Corporate Governance in the Public Sector in Nigeria”, Corporate Ownership & Control, 13(3): 561-571.
• Peat, M. et al. (2015), “The Effects of Fiscal Opacity on Sovereign Credit Spreads”, Emerging Markets Review, 24, 34-45.
• Roubini, N. (1991), “Economic and Political Determinants of Budget Deficits in Developing Countries”, Journal of International Money and Finance, 10, 49-72.
• Sanchez, I.M.G. et al. (2013), “Determinants of Government Effectiveness”, International Journal of Public Administration, 36, 567-577.
• Sarhangi, K. et al. (2021), “The Impact of Effective Governance and Regulatory Quality on Financial Development Under Economic Conditions of the Mena Countries”, Journal of Contemporary Issues in Business and Government, 27(3), 2791-2798.
• The World Bank (2023a), Worldwide Governance Indicators, Government Effectiveness, <https://data.worldbank.org/>, 14.03.2023.
• The World Bank (2023b), Worldwide Governance Indicators, <https://data.worldbank.org/>, 14.03.2023.
• The World Bank (2023c), World Development Indicators, GDP Per Capita, <https://data.worldbank.org/>, 14.03.2023.
• The World Bank (2023d), World Development Indicators, Consumer Price Index, <https://data.worldbank.org/>, 14.03.2023.
• Trenovski, B. et al. (2016), “The level of Fiscal Transparency and Accountability of Budget Users - Evidence from Macedonia”, International Journal of Public Policy, 12, 210-242.
• United Nations (2007), Public Governance Indicators: A Literature Review, New York: United Nations Publication.
• Woo, J. (2003), “Economic, Political, and Institutional Determinants of Public Deficits”, Journal of Public Economics, 87(3-4), 387-426.
• Yerdelen-Tatoğlu, F. (2012), İleri Panel Veri Analizi: Stata Uygulamalı, İstanbul: Beta Yayıncılık.