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THE EFFECTS OF FISCAL AND MONETARY DISCIPLINE ON BUDGETARY OUTCOMES

Authors

  • BILIN NEYAPTI,

    1. Neyapti: Associate Professor, Department of Economics, Bilkent University, 06533 Bilkent, Ankara, Turkey. E-mail: neyapti@bilkent.edu.tr
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      We would like to thank to Erdem Basci and the participants of the seminar at Bilkent University, The Center for Economic Design, and to anonymous referees for their valuable comments. We are responsible for all the remaining errors. S.O. was a Masters Student at Bilkent University when she contributed to the article. This article was first received by the journal in May, 2004.

  • SECIL OZGUR

    1. Ozgur: Former Masters Student, Department of Economics, Bilkent University, 06533 Bilkent, Ankara, Turkey.
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      We would like to thank to Erdem Basci and the participants of the seminar at Bilkent University, The Center for Economic Design, and to anonymous referees for their valuable comments. We are responsible for all the remaining errors. S.O. was a Masters Student at Bilkent University when she contributed to the article. This article was first received by the journal in May, 2004.


Abstract

This article extends the model of Von Hagen and Harden that analyzed the impact of fiscal discipline on budgetary outcomes. We modify the model by adding monetary discipline to interact with fiscal discipline in order to analyze the effects of both on budgetary outcomes. The model predicts that while both inflation and budget deficits are negatively associated with fiscal discipline, they may be positively associated with monetary discipline, proxied by central bank independence. This result obtains due to optimizing agents internalizing the burden of spending: inflation. Although not conclusive due to data limitations, empirical findings also support these predictions. (JEL D73, E58, H61, H72)

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