Abstract

There is a growing recognition that the design and implementation of economic policies depend to a considerable extent on the incentives of policymakers. It is also generally recognized that even well-intended governments may end up pursuing unsound policies. This may happen in part because incentives of policymakers change over time, with policies agreed to previously not being implemented. 1 It may also reflect the impact of the political environment, such as the influence of special interests or immediate electoral concerns, that generally results in short-time horizons. These factors have contributed to unsatisfactory fiscal performance in many advanced and developing economies (IMF, 2003).