be significantly and negatively related to PFM performance. De Renzio et al. use the presence of UN peace-keepers since 1995 to measure fragility. We start by using a continuous measure, the rating for political stability by the Worldwide Governance Indicators (Kaufman, et. al). We rescaled the percentile rank data to the range 0 to 10, with higher levels reflecting greater political stability (common units with other variables make comparisons of the slopes across different institutional variables easier to interpret). Political stability and absence of violence measures “perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism.” We test robustness with two alternative measures: one, ‘fragility’ by looking at which countries have been included in the World Bank’s list of fragile states between 2004 and 2012. The variable measures the number of years a country was classified as ‘fragile’ in the five-year period before the latest PEFA assessment (lagged by one year).<sup>26</sup> Second, we use Foreign Policy’ Failed States Index (Annex 3). This is a continuous variable based on a country’s score.

The next variable of interest, _regime_ , measures the nature of the political regime. As the main data source, we use the Freedom House index, which annually assesses each country on their political rights and civil liberties through expert assessments. We use a second data source, Polity IV, as a robustness check. To compute the variable, we aggregated Freedom House’s two sub-indices, political freedom and civil liberties, which range from 1 to 7 (lower numbers indicate higher levels of freedom). We then rescaled and inverted this variable to the range 0 to 10, so the higher levels denote more political freedom. A more democratic regime could be expected to be associated with more effective accountability and through this mechanism with better PFM systems (de Renzio 2009; Lake and Baum 2001). However, from existing work, we know that the regime type as such is not very likely to show a statistically significant relationship with the performance of PFM systems. We test in addition, whether the degree of political competition is associated with performance on the accountability sub-dimension of PFM, i.e. the quality of external audit and parliamentary follow-up. As shown in section 4.1, external audit and follow up is the weakest of the six PEFA dimensions across all countries. We are interested to see whether the presence of a more democratic regime alters the performance on this dimension; given that in principle it should enable more independent audit offices as well as a stronger role of the legislature.

A third political variable considered here is the presence of _programmatic political parties_ . The presence of programmatic parties signals that interest aggregation in a country follows a relatively stable pattern, and that interests are aggregated in ways that transcends individual personalities and instead is centered around ‘programs’ or policy stances. The measure cuts across the democracy-autocracy distinction; and it has shown to be significantly related to general public sector performance in existing research (Cruz and Keefer 2010), but it has not been included in previous research on PFM specifically. The variable used here (‘parties’) is constructed in the same manner as Cruz and Keefer (2010) using variables from the Database of Political Institutions (2012). It measures the share of the largest three government parties and the largest opposition parties that are ‘programmatic’ (right, left, or center) in their orientation. In other words, if a country has three out of four of these parties coded as left, right, or center,

> 26 The World Bank’s classification is in turn based on the overall CPIA ratings, with countries having a CPIA of 3.2 or below being classified as fragile. These countries were categorized as ‘LICUS’ in 2004 and 2005, ‘Fragile States’ in 2006 through 2009, and ‘Fragile Situations’ since 2010.

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