Budget regimes and internal governance: Considerations for the sustainability of fiscal policy

In a fiscal policy set-up with Ricardian equivalence and rational expectations, the decision-making of private agents is based on the knowledge that current deficits will be met with future tax increases or spending decreases. This view requires that the government's budget exhibit intertemporal balance, or that fiscal policy be sustainable. This paper examines the extent to which sustainability holds in the light of changes in the institutional structure of the budget process and changes in internal House governance rules. The results indicate that certain aspects of sustainability are related to the underlying institutional structure and governance of the budget process. © Springer-Verlag 2005.