distribution.<sup>4</sup> Most other studies of revenue forecast performance tend to focus on state and local governments within wealthy federal systems such as state governments. Examples include Mocan and Azad (1995) who cover the United States of America, Couture and Imbeau (2009) who test data from Canadian provinces, and Chatagny and Soguel (2011) who use data from Swiss cantons.

Examples of cross-country work on expenditure deviations are equally rare. Peters (2002) cites three. In one of these, Petrei (1998) documents the magnitude of aggregate expenditure deviations in six Latin American countries from 1991 to 1995. The deviations ranged from -24.65 percent (Brazil 1995) to 81.41 percent (Argentina 1992) with an average of 7.03 percent. In another, Kostopoulos (1999) includes a short description of aggregate budgetary deviations, and sector spending deviations, for 20 Sub-Saharan African countries. He finds that aggregate deviations were moderate while expenditure deviations for specific sectors tended to be much larger, frequently exceeding 30 percent. In the third, the IMF Fiscal Affairs Department (2001a) found that over one third of a sample of 25 highly indebted poor countries had “significant differences” reported between allocations and expenditure commitments.

What can explain the wide variation across countries in the quality of budget execution found in the studies cited above? The multi-disciplinary approach used here follows works by authors such as Alesina _et al_ (1999), Fabrizio and Mody (2006) and Dabla-Norriss _et al_ (2010), who explore whether various aspects of the budget process are correlated with aggregate fiscal discipline<sup>5</sup> after controlling for economic shocks and variables representing various political institutions. The question they address is an important one: it could be that political institutions are the most relevant factor in explaining fiscal discipline, and the quality of PFM might merely be a reflection of these institutions. If so, the prospects for successful PFM reform programs in poor performing countries would be limited, particularly since political institutions tend to remain in place for decades at a time.

Persson and Tabellini (2000) and Persson (2002) provide convincing evidence that aggregate fiscal outcomes are influenced by political institutions after conditioning for economic shocks. In particular, fiscal outcomes are correlated with electoral rules, rules governing the maintenance of executive tenure, and rules governing the separation of powers. Even so, Alesina _et al_ ( _ibid_ ), Fabrizio and Mody ( _ibid_ ), and Dabla-Norriss ( _ibid_ ) and several others find good evidence that budgetary procedures are effective in promoting aggregate fiscal discipline, after controlling for political institutions. If so, then there should be room for PFM reforms to proceed independently of political institutions.

When public service delivery is important, good budget execution will require the ability and desire to defend expenditure targets against unexpected shocks within a given fiscal year. Unexpected revenue shortages, perhaps induced by recession or by falling commodity prices, will need to be met by increased borrowing. Excess revenues would similarly be met by reduced borrowing if wasteful spending is to be avoided. In other words, good budget execution requires the willingness and capacity to deploy effective within-year counter-cyclical financing. Finding correlates for such counter-cyclical financing is one of the major goals pursued in this paper. Inspiration in this regard comes from Dabla-Norris ( _ibid_ ) who explore the interaction between the quality of budgetary institutions and counter-cyclical policy as part of their broader inquiry into fiscal discipline. They

> 4 They also found a strong degree of cyclicality in the distribution of forecast errors over time – though they did not explore the topic further.

> 5 The primary dependent variables are the fiscal deficit as a share of GDP or the stock of debt as a share of GDP.  Fiscal discipline is presumed to be stronger when deficits and debt stocks are smaller.

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