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I would like to thank Carlo Cottarelli, Philip Gerson, Martine Guerguil, and Paolo Mauro for helpful comments and discussions. I am grateful to Ali Abbas, Nina Budina, Fuad Hasanov, Laura Jaramillo Mayor, Jahyun Koo, Philip Lane, and Marialuz Moreno-Badia for comments and suggestions. The main results of this paper were published in the IMF’s September 2011 Fiscal Monitor. Petra Dacheva and Raquel Gomez Sirera provided excellent research assistance. All remaining errors are my own.
Detailed data sources are provided in Table A.1 in the Appendix. Economy groupings follow the classification in the IMF September 2011 Fiscal Monitor (IMF, 2011b).
For countries where gross debt and budget deficit data are not available from 1980 onwards, the earliest available year is used.
Of course, countries may wish to be “creative” even without numeric budget rules. The number of episodes reported in Table 2 during which countries may have had an incentive to revert to creative accounting is thus likely to be underestimated.
A natural test to check for the use of creative accounting practices in the form of employing public corporations as tools of fiscal policies would be to check their financial statements. Unfortunately data are not widely available to investigate this.
A Hausman (1978) test was conducted for both the advanced and emerging/low-income countries regressions to check whether a fixed effects model is preferable to a random effects model. The hypothesis that the individual-level effects are adequately captured by a random effects model can be rejected at the 1 percent level of significance.
The final dataset includes 87 countries for which data on fixed effects and fiscal transparency are available