Who Decides on Public Expenditures? A Political Economy Analysis of the Budget Process: The Case of Argentina

Abstract

The budget process is increasingly considered key for reform efforts to improve fiscal outcomes. In this paper we embark on a political economy analysis of the budget process in Argentina, in the spirit of the IDB project “Political Institutions, Policymaking Processes and Policy Outcomes” in order to understand who determines budget outcomes in Argentina. In particular, we seek to characterize the institutional framework that regulates the budget preparation, approval, implementation and control. Furthermore, we identify which actors are involved both formally and informally in the process at each stage, and seek to understand their incentives and interactions. We find that the President has a de facto role that is much more powerful than what the laws and institutions of the budget process stipulate. However, the rigidity of the budget process, together with other constraints such as macroeconomic shocks, fiscal rules, agreements with International Financial Institutions (IFIs) and the influence of other actors such as governors, legislators and lobbies - have limited the ability of the Executive to substantially modify the budget process. Furthermore, compared with the period of high inflation of 1983-1991, in the past decade we have witnessed dramatic improvements in the institutionalization of the budget process, both in political and administrative terms. These reforms have accompanied a strong improvement in fiscal outcomes in the 1990s compared with the 1980s, and provided some of the tools necessary to limit the depth of the recent crisis and regain macroeconomic stability.