The political economy of the budget process: The case of Ecuador

Nov 2006
This study describes the main actors (formal and informal) involved in the budget-making process in Ecuador, and presents evidence regarding the main political and economic determinants of fiscal performance. It also discusses whether different political and institutional arrangements governing the budget process affect incentives for the composition of the budget. This paper seeks to fill a gap in the scholarly literature by analyzing the formal rules, incentives, and coalition dynamics of the relevant budget players behind the process of design, approval, execution, and oversight of budgets. The current research agenda requires a systematic analysis of the different arenas and stages in which budgets are made. The variable of interest is the quality of budget outcomes, a composite notion that seeks to evaluate four dimensions of budget performance: whether budgets allocations are representative of the interests of the majority, are sustainable over time, are efficiently allocated, and can be adaptable to changing economic circumstances. The paper tests the validity of the proposed analysis of budget dynamics in Ecuador, a country where major political and economic transformations of recent years, including the adoption of considerable constitutional reforms in 1998 and the move to dollarization in 2000 should have altered the representative, efficiency, flexibility, and sustainability of budget outcomes.