Strengthening Public Financial Management : Exploring Drivers and Effects

This paper explores two relationships, first between country characteristics and the quality of public financial management ('drivers'), and second between the quality of public financial management systems and expected outcomes ('effects'). On the influence of country characteristics, the paper investigates economic factors (income level, growth, and resource dependency), population size, levels and sources of revenue, and three macro-political characteristics -- political stability, regime type, and the presence of programmatic parties. These characteristics jointly explain about 40 percent of the variation in the quality of public financial management across countries. Furthermore, first-difference analysis suggests that countries with lower initial public financial management quality improve at a higher rate over time. This implies that structural factors set the scene for the likelihood of better or worse performance, but also that there is substantial variation among countries sharing certain characteristics and reform opportunities exist even in unfavorable environments. Methodologically, a key limitation is that the direction of causality cannot be fully addressed with the types of data available. On the effects of the performance of public financial management, the paper finds evidence that stronger performance results in better budget credibility, but not in lower deficits. Furthermore, there is no clear evidence regarding operational efficiency. The observed disconnect could be caused by missing complementary state capacities, measurement problems, or other issues, which need to be explored further. Overall, the findings are consistent with the assumption that stakeholder incentives and constellations matter and that reform approaches combining good technical calibration and political economy considerations are likely to influence success in strengthening public financial management.

Bibliographic Details

Main Authors:	Fritz, Verena, Sweet, Stephanie, Verhoeven, Marijn
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014-11
Subjects:	ACCOUNTABILITY RELATIONSHIPS, ACCOUNTING, AGGREGATE BUDGET, AGGREGATE DEMAND, AGGREGATE DISCIPLINE, AGGREGATE EXPENDITURE, AGGREGATE EXPENDITURES, AGGREGATE FISCAL, AGGREGATE FISCAL DISCIPLINE, AID DEPENDENCY, ALLOCATION, ALLOCATION OF FUNDS, ANNUAL DEFICIT, ANNUAL RATE, BUDGET ALLOCATIONS, BUDGET CREDIBILITY, BUDGET EXECUTION, BUDGET IMPLEMENTATION, BUDGET PLANNING, BUDGET POLICY, BUDGET SYSTEMS, BUDGETARY PROCESS, BUDGETING, BUDGETING PROCESS, CHECKS, CIVIL LIBERTIES, COMPOSITION OF EXPENDITURES, COST EFFECTIVENESS, COST-EFFECTIVENESS, COUNTRY ANALYSIS, COUNTRY COMPARISONS, COUNTRY DATA, COUNTRY EXPERIENCE, CREDIBLE BUDGET, DATA ANALYSIS, DEBT, DEBT RELIEF, DEBT SERVICE, DEBT SERVICE PAYMENTS, DECISION MAKING, DECISION-MAKERS, DEMOCRATIC GOVERNMENTS, DEVELOPING COUNTRIES, DEVELOPMENT ASSISTANCE, DEVELOPMENT POLICY, DIAGNOSTIC TOOL, DOMESTIC REVENUE, DONOR AGENCIES, DUMMY VARIABLE, DUMMY VARIABLES, ECONOMETRIC ANALYSIS, ECONOMETRIC ASSESSMENT, ECONOMETRICS, ECONOMIC CONDITIONS, ECONOMIC GROWTH, ECONOMIC INSTABILITY, ECONOMIC OUTLOOK, EDUCATION EXPENDITURES, EFFICIENCY OF GOVERNMENT EXPENDITURE, EXPENDITURE TRACKING SURVEYS, EXTERNAL AUDIT, FINANCIAL ACCOUNTABILITY, FINANCIAL CRISIS, FISCAL AFFAIRS, FISCAL DEFICITS, FISCAL DISCIPLINE, FISCAL FRAMEWORKS, FISCAL OUTCOMES, FISCAL PERFORMANCE, FISCAL POLICY, FISCAL PROGRAM, FISCAL REPORTING, FISCAL STANCE, FISCAL YEARS, GDP, GDP PER CAPITA, GOVERNMENT PERFORMANCE, GOVERNMENT SPENDING, GROWTH RATE, HEALTH EXPENDITURE, HEALTH SECTOR, HEALTH SPENDING, HIPC, HOLDING, INCOME GROUPS, INCOME LEVEL, INCOME LEVELS, INCOME TAX, INSTITUTIONAL DEVELOPMENT, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL FINANCIAL CRISIS, INVESTING, MACRO-ECONOMIC POLICIES, MACROECONOMIC FRAMEWORK, MEDIUM-TERM EXPENDITURE, MEDIUM-TERM EXPENDITURE FRAMEWORKS, MIDDLE INCOME COUNTRIES, MONETARY FUND, NATIONAL INCOME, NATIONAL POLICY, NATIONAL POLICY PRIORITIES, NATURAL RESOURCES, OFFICIAL DEVELOPMENT ASSISTANCE, OPERATIONAL EFFICIENCY, OVERHEAD COST, PER CAPITA INCOME, PER CAPITA INCOMES, PERFORMANCE OF GOVERNMENT, POLITICAL ECONOMY, POLITICAL STABILITY, POLITICIANS, PROGRAMS, PUBLIC, PUBLIC EXPENDITURE, PUBLIC EXPENDITURE REVIEWS, PUBLIC EXPENDITURE TRACKING, PUBLIC FINANCE, PUBLIC FINANCIAL MANAGEMENT, PUBLIC FINANCIAL MANAGEMENT SYSTEMS, PUBLIC FUNDS, PUBLIC RESOURCES, PUBLIC SECTOR, PUBLIC SECTOR PERFORMANCE, PUBLIC SECTOR SPECIALIST, PUBLIC SERVICE, PUBLIC SERVICE DELIVERY, PUBLIC SERVICES, PURCHASING POWER, REAL GDP, REALLOCATIONS, REFORM APPROACHES, REFORM STRATEGIES, RESOURCE AVAILABILITY, RETURN, RETURNS, REVENUE VOLATILITY, SECTORAL ALLOCATIONS, SECTORAL BUDGET, SECTORAL EXPENDITURE, SOCIAL WELFARE, SUSTAINABLE FISCAL BALANCE, TAX ADMINISTRATION, TAX POLICY, TAX REVENUE, TERRORISM, TOTAL EXPENDITURE, TOTAL REVENUE, TRANSPARENCY, UNCERTAINTY, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/2014/11/20346313/strengthening-public-financial-management-exploring-drivers-effects https://hdl.handle.net/10986/20631
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