results has not been well researched empirically. On the one hand, there is a wealth of specific findings that weaknesses in PFM affect the ability of a government to deliver services to their citizens – as, for example, set out in many _Public Expenditure Reviews_ (PERs) and _Public Expenditure Tracking Surveys_ (PETS). But efforts to explore the cross-country experience on the link between PFM quality and reforms, and (improvements in) fiscal outcomes and service delivery have been scant. In their comprehensive review of published materials on PFM reforms, Pretorius and Pretorius (2008) note this as the first area where they see a significant gap and a need for greater investments in building a better evidence and knowledge base. This scarcity is primarily due to the fact that until very recently, cross-country measures of the quality of PFM systems were not readily available, as well as data limitations with regards to the allocation of funds and their actual usage – in particular with regards to the efficiency of spending.

The empirical work that has been done has primarily focused on the effects of improved public financial management on aggregate fiscal discipline – both because this is a widely shared concern, and because the relevant data on fiscal deficits and changes in debt have been more readily available (e.g. von Hagen and Harden 1996; Prakash and Cabezon 2008; Alesina and Perotti 1996). Most of the findings from these studies – focused on different groups of countries and time periods – confirm a relationship between better PFM systems and a more sustainable fiscal balance, albeit with various caveats and nuances.

Among the first studies to explore the relationship between aspects of PFM reforms and all three goals are Vlaicu et al. (2014) and World Bank (2013). These studies look in particular at the relationship between the adoption of an MTEF and the following variables: fiscal discipline (which is part of the primary rationale of an MTEF), sectoral expenditure volatility (as a proxy for allocative efficiency), and cost-effectiveness of spending in the health sector (as a proxy for operational efficiency). Findings suggest that fiscal discipline improves after the adoption of an MTEF, some improvements in reduced volatility of allocations to the health sector, but no clear effect on operational efficiency as proxied for in the analysis.

The preliminary assessment of the impact of PFM system quality on fiscal outcomes and public service delivery undertaken in this paper is important to better capture what expected effects can actually be observed. This includes a political economy aspect: asking decision-makers in developing countries to commit to PFM reforms, to remain committed and to pursue effective implementation is significantly more persuasive if such reforms are linked to tangible results within reasonable time periods. The empirical basis for developing better evidence has been improving with the increased availability of more and better data on the quality of PFM systems across countries and points in time, as well as on expected impacts. Nonetheless, there are still a number of important data gaps that will need to be closed in the coming year so as to enable more reliable and granular analysis.

# **3. Empirical Models**

## **3.1 Macro-Level Country Characteristics and PFM Quality**

As set out in section 2 above, we start the exploration by investigating the extent to which GDP per capita appears as a fundamental driver of PFM performance, as this has been identified as a 9