Document Type : Research Paper
Authors
1 Department of Economics ,Allameh Tabataba'I university, Tehran, Iran
2 Department of Economics, Allameh Tabataba'I university, Tehran, Iran
3 Department of Economics , Allamah Tabataba'I University, Tehran, Iran
Abstract
Financial instability has posed a challenge for developing countries, particularly oil-dependent developing nations, due to their reliance on windfall oil revenues. During periods of abundant oil income, governments tend to increase spending under political pressures, while during times of declining revenues, they struggle to reduce expenditures proportionally due to spending rigidities. In this context, institutional quality appears to influence fiscal sustainability by fostering government cohesion. Accordingly, this study examines the impact of institutional quality on fiscal sustainability in 11 oil-producing developing countries and 16 non-oil developing countries from 2010 to 2020, using panel regression models and the PCSE technique. To measure institutional quality, three indicators were used: control of corruption, rule of law, and regulatory quality, while fiscal sustainability was represented by budget deficit volatility. The estimation results indicate a negative relationship between budget deficit volatility and institutional quality indicators. Furthermore, a comparative analysis of the models revealed that the effects of corruption control and regulatory quality on budget deficit volatility are stronger in oil-producing developing countries, whereas the rule of law has a greater impact on budget deficit fluctuations in non-oil developing countries.
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