Economic, political and social determinants of public deficits: An empirical analysis on developing countries

Nowadays, public deficit is one of the most important macroeconomic problems encounted in both developed and developing countries. Deficit has becomes a chronic problem in developing countries specially in early beginnig of 1970. After middle of 1980, in spite of substantial progress obtained with fiscal reforms, many developing countries faced with the large recurrent budget deficits.Economic literature on the explanation of public deficits has been focusing on two main issues. On one hand, the accumulation of public debts in recent decades and, on the other hand, the large observed cross-countries differences on public deficits and debt. Conventional economic arguments alone are not sufficient to explain this behavior. Therefore, recent political economy literature emphasizes the role of political and institutional factors in the explanation of the fiscal policy and, in particular, of the budget balances behavior. Literature on fiscal politics has developed theories to explain how political and institutional factors determine fiscal outcomes and has provided supporting empirical evidence. However, the existing empirical studies are mostly on OECD countries.The purpose of this study to investigate effects of political and institutional factors on budget deficit in developing countries. And in this paper, an empirical study for 33 developing countries included Turkey using cross-section is given. According to estimated results, such as opennes, economic growth rate and per capita income level as well as economic factors there is significant statistical relationship between budget deficit and economic freedom level, rule of law, burden of government regulation, wastefulness of government spending and political stability.The empirical analysis conducted in this study shows that the budget deficits stem from the various economic and political decisions and accordingly the political factors have great impact on budget deficits as well as economic factors.Keywords: Public Deficit, Developing Countries, Economic and Social Factors, Political Factors, Cross-Section Analysis