Budget deficit and the achievement of fiscal equilibrium – institutional approach

Abstract

The study critically summarizes, assesses, and comments on the political institutional theories created by institutional economic theorists about the correlations between the appearance of budget deficit and political decision-making. There is a special section on whether political business cycles make the budget deficit fluctuate, and whether there is large enough force attached to general elections to explain fiscal expansion. Budgetary models and indices that evaluate fiscal efficiency from the point of view of the political institutional structure are examined. At the end, based on experience gathered, the best institutional structure to create fiscal equilibrium is outlined.