GOVERNMENT SPENDING EFFECTIVENESS AND THE QUALITY OF FISCAL INSTITUTIONS

The cyclical behaviors of government spending and output are investigated for the time period 1996-2013, in the sample of 45 countries divided into 3 groups – Western European, Eastern European and CIS countries – with each one of these groups representing a different development stage. The main purpose of the study is to identify the main determinants of the effectiveness of government spending and especially, assess the role of institutional quality. Panel data fixed effects model was used for estimation purposes. In developed countries the main determinant of government spending effectiveness is found to be institutional quality, but access to financial markets is more pronounced in developing countries.