The surplus factor

A remarkable change in fiscal outcomes has taken place at the end of the 1990s when budgetary surpluses emerged or re-appeared in 13 out of 22 OECD countries, after deficits had been the norm in fiscal policy since the early 1970s. This paper investigates why surpluses emerged in some countries but not in others, investigating the role of economic, political and institutional variables. Results show that surpluses coincided with fewer spending ministers, a higher perception that corruption is under control, stronger expenditure rules and more transparent fiscal policies.

Regarding budgetary behaviour, results indicate that (i) revenue booms lead to a procyclical increase in spending in deficit countries whereas this effect is absent in surplus countries and (ii) that a political budget cycle in expenditure is present in deficit countries but not in surplus countries.

Finally, results show that cross country differences in expected expenditure pressures due to ageing populations cannot explain why surpluses emerged in some countries but not in others. The current policy discussion on the perceived need to move towards budgetary surpluses in many countries may therefore need to include the underlying politicalinstitutional setting in which the advice needs to be implemented.

Chapter in The role of fiscal rules and institutions in shaping budgetary outcomes, written with Peter Wierts. When we still thought that the private sector balance sheet had nothing to do with the government balance.

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