Abstract:

Do budget institutions play a role in explaining why government effectiveness is higher in some advanced countries than in others? Employing an original panel dataset that covers four different years (1991, 2003, 2007 and 2012), we find that budget centralization has a negative and significant effect on government effectiveness in OECD countries after accounting for a list of control variables, such as GDP per capita, government expenditure and country- and year-fixed effects. We show that less centralized countries display significantly better performance in health and infrastructure and a similar effectiveness in tax collections. The negative impact of budget centralization seems to manifest especially at the execution stage of the budgeting process, while it is not significant at the formulation and legislation stages. These results survive a list of sensitivity tests.