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A Principal-Agent Theory Approach to Public Expenditure Management Systems in Developing Countries
Author:
Mr. Luc E. Leruth
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Elisabeth Paulnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2006: Issue 204
Language:
English
Publication Date:
01 Sep 2006
DOI:
https://doi.org/10.5089/9781451864649.001
ISBN:
9781451864649
ISSN:
1018-5941
Pages:
43
Keywords:
WP; agency cost; optimal contract
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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A well-functioning public expenditure management (PEM) system is considered a critical pillar of government efficiency, on par with a low-distortion tax system and efficient tax administration. The paper discusses PEM systems in developing countries using an analytical framework based on principal-agent theory. This simple model can be applied to various PEM systems, and allows for comparisons between institutional settings. To illustrate this, we analyze the benefits derived from the use by the Ministry of Finance (MoF) of two control instruments; ex post audits and ex ante controls, and assess their value in terms of their ability to deter cheating. We derive a set of possible "control regimes" which can be used by the MoF. Although we illustrate the use of the model using developing countries, it is also relevant to developed economies.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2006: Issue 204