Abstract
This paper views the budgetary process as a limited contingencies contract between the Treasury and the ministers, allowing a minister to ask for budget revisions. Upon costly verification by the Treasury, the minister may obtain extra funds. For significant state verification costs and for low volatility, the contract is non-contingent. For volatility significant enough, the contract becomes state-contingent - it reduces the initial allocation, and reduces the threshold associated with budgetary revisions. In volatile economics, the projected revenue understates the realized budget, and the average budget error is positive. The model's predictions are confirmed using data from Latin America. (C) 2000 Elsevier Science B.V. All rights reserved.
Original language | English |
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Pages (from-to) | 425-449 |
Number of pages | 25 |
Journal | Journal of Development Economics |
Volume | 63 |
Issue number | 2 |
DOIs | |
State | Published - 1 Dec 2000 |
Externally published | Yes |
Keywords
- Budget revisions
- Inflation
- Volatility
ASJC Scopus subject areas
- Development
- Economics and Econometrics