Institutional Approach to the Budget Deficit: An Empirical Analysis

The objective of this study is to examine the factors affecting budget deficit by using a panel dataset 66 countries from 1996 2020. In first stage regressions, current employs fixed and random effect models estimate impact institutional quality other economic variables on deficit. second regression, pooled mean group (PMG) (MG) estimation method employed for estimating long-run short-run coefficients in heterogeneous dataset. empirical estimates confirm that GDP per capita positively significantly associated with long run. Further, inflation rates trade openness also have positive significant impacts Moreover, results show that, run, population growth rate negatively As far as are concerned, findings an increase corruption government institutions leads However, political stability, improved bureaucratic quality, democratic accountability rule law lead reduction will help policymakers practitioners better understand determinants design policies improvement which, turn, may control level Jel Codes: H5, H6, H3, H4