The analytical capacity of budgetary administrations: the case of the Euro area

Purpose - The objective of this study is to analyze the role that budgetary analytical capacity (BAC) plays for fiscal discipline in a sample of Eurozone countries in the postcrisis period. Dessign/methodology/approach - Building on the policy capacity literature, an index for the BAC is constructed by including OECD budgetary data from three dimensions: reliability of projections, openness to legislative scrutiny and transparency. The proposed BAC index is validated by checking that larger values of the index are associated with the higher fiscal discipline scores across countries. Findings - Controlling for the economic cycle, BAC index is positively associated with fiscal discipline. The association is stronger for the index as a whole than for the three separate dimensions. Research limitations/implications - The study is done on the limited sample of countries, and it is not feasible to validate results over time. Practical implications - Budgetary policymakers can improve fiscal discipline by enhancing the three pillars that support the BAC. Social implications - Stronger BAC can help to improve the quality of public decision-making and overcome political opportunism. Originality/value - This is the first study that introduces the concept of BAC, makes it operational and suggests its relevance for supporting fiscal discipline.