The Political Economy of Budget Rules in the. Institutional analysis, preferences and Performances

Transcription

1 The Political Economy of Budget Rules in the twenty-six Swiss Cantons Institutional analysis, preferences and Performances Thesis presented to the Faculty of Economic: and Social Sciences at the University of Fribourg (Switzerland), in fulfilment of the requirements for the degree of Doctor of Economics and Social Sciences By Nadia Yerly from La Roche (Fribourg) Accepted by the Faculty of Economics and Social Sciences on at the proposal of Professor Dr. Bernard Dafflon, University of Fribourg, First Advisor Professor Dr. Thomas Lenk, University of Leipzig (Germany), Second Advisor Fribourg, Switzerland 2013

2 Table of content Introduction 1 PARTI Normative framework, literature, method 7 Chapter 1 Normative framework Balanced budget requirement: the Golden Rute revisited Definition of the golden rule of balanced budget and discussions The dassical golden rule of balanced budget 11 A/ In Theory of choice: the concept of cost 13 B/ 'Public price' and the responsibility 14 C/ Utilization of resources 15 Df Inter-generational relationship 16 E/ Political support for the governing party Discussion about the strict balanced budget rule and drawbacks of the borrowing prohibition 21 A/ The golden rule of balanced budget has no theoretical foundations within the 'Ricardian logic' 22 B/ The classical golden rule of public finance does not automatically ensure that public expenditures programs match the Citizens' preferences 23 C/ The automatic macroeconomic-stabilization function of the budget is restrained 24 D/ Adjournment of Investment projects and the cost-benefit analysis of accelerated local Investment projects The 'pay-as-you-use' principle based on temporal and inter-generational equity (Musgrave, 1959,1963) The Golden Rule revisited (GRR) Definition of the concept of Golden Rule revisited Definition of capital Investment Debt service and consistent amortization policy Why current outlays must be tax-financed? The association of the Golden Rule revisited with the 'rainy-day-fund' principle accompanied by the 'floating line' Budget responsibility versus budget discipline 47 Chapter 2 Existing literature referring to the 'budget constraint' A panel of empirical studies constructing an 'index of budget constraint 7 Observations and critics Budget constrainfs measurement based on 'balanced budget requirement' The A.C.I.R. Stringency Index Fiscal Rule Index (FRI) and Fiscal Rule Cyclicality Index (FRCI) 60

3 II 2.2 Budget constraints measurement based on the 'budget process' Observations aboutthestudies measuringthe budget constraint Key questions qualifyingthe budget constraint from 'soff to 'hard' 112 Chapter 3 The method of institutional measurement of the budget constraint Institutional architecture of the budget constraint Institutional level of the requirement Distinction Budget - Account Nature of the budget/account that must be balanced Time requirement for the balance and its extent Debt amortization and amortization practices Advocated measure and sanction Global architecture of the Budget Constraint Global Index of Budget Constraint (gibc) 164 PART II Empirical analysis 169 Chapter 4 Institutional measurement of the Swiss cantonal budget constraints over the period The Swiss context The Swiss cantonal laboratory The data-gathering Evolution of the twenty-six Swiss cantonal architectures of the budget constraints over the period Appenzelf Ausserrhoden (AR) 179 Appenzell Innerrhoden (AI) 182 Aargau (AG) 182 Basel-Landschaft (BL) 1S8 Basel-Stadt (BS) 190 Bern (BE) 191 Fribourg (FR) 196 Geneve (GE) 204 Glarus (GL) 205 Graubünden (GR) 207 Jura (JU) 208 Luzern (LU) 210 Neuchätel (NE) 211 Nidwaiden (NW) 212 Obwalden (OW) 214 St.Gallen (SG) 214 Schaffhausen (SH) 216 Schwyz (SZ) 218 Solothurn (SO) 219

4 Thurgau (TG) 221 Ticino (Tl) 222 Uri(UR) 222 Valais(VS) 223 Vaud (VD) 225 Zug (ZG) 226 Zürich (ZH) Evolution of the twenty-six Swiss gibc over the period The twenty-six cantonal standardized Global Indices of Budget Constraint Discussions 235 A/ Gap between the cantonal gibc 235 8/ Evolution trend of the cantonal gibc 235 C/ Stability versus flexibility of the institutional framework 237 Chapter 5 Model explaining the impact of cantonal budget constraint on fiscal Performance: Endogenous and exogenous variables, hypotheses The model explaining fiscal Performance Endogenous variables 'bca': balance of the current account 'corrbca': corrected balance of the current account 'fnca'\ financial need per capita, i.e. balance of the administrative account per capita 'expcototal public expenditures per capita Exogenous variables CategoryA: Institutional variables 252 'gibc': standardized Global Index of Budget Constraint 253 'finref: standardized index of referendum Category B-Socio-demographical variables 263 'lang': official language(s) of the canton 263 'logpoplog population Category C - Economical variables 269 'incomeca': cantonal income per capita Category D - Structura! variables 275 findeptr': fiscal dependence of the canton related tothe total fiscal revenues 'rdec': ratio of decentralization of the cantonal expenditure Political variables Fiscal preferences: the moral attitude 297 Chapter 6 Evaluation of the effective impact of the BC on fiscal Performance Empirical results Fiscal Performance of the Swiss cantons compared to the legislative framework over the period A/ Isolated Observation of the effect of the BC versus long period of observations 314 B/ The chicken-egg dilemma 314 III

5 IV 6.2 Panel data analysis Arguments justifyingthe use of panel data analysis Sources of the panel data and the units of the variables Regressions: period A/ Explainingthe public expenditures per capita logexpca (period ) B/ Robustness checks: Breusch-Pagan and Hausman Tests, for the model explainingthe public expenditures per capita logexpca (period ) 331 C/ Conclusion (Equation 6-1) Regressions: period A/ Explaining the public expenditures per capita logexpca (period ) B/ Robustness checks: F-Test, Breusch-Pagan and Hausman Test for the model explaining the public expenditures per capita logexpca (period ) 345 C/ Conclusion (Equation 6-2) Regressions: period A/ Explainingthe balance of the current account bca (period ) 352 6/ Explaining the corrected balance current account corrbca (period ) 355 C/ Explaining the financial need per capita fnca (period ) 357 0/ Explainingthe public expenditures per capita logexpca (period ) E/ Robustness checks: F-Test, Breusch-Pagan and Hausman Test 367 (Equation 6-3) 367 F/ Conclusion (Equation 6-3) Conclusion about the empirical impact of the BC on fiscal Performance in the twenty-six cantons, Controlling the other variables 374 Conclusion 379 References 385