Multiyear budgets and fiscal performance: Panel data evidence

• Analyzes new dataset on the global use of multiyear budgets (MTFs).
• Uses new system to classify MTF into three phases: MTFF, MTBF, and MTPF.
• An MTF improves budget balance by 2 percentage points on average.
• More advanced MTFs have larger effects on fiscal performance.

In the last two decades more than 120 countries have adopted a multiyear budget process (Medium-Term Framework, or MTF) that enables the central government to set multiyear fiscal targets. This paper analyzes a newly-collected dataset of worldwide MTF adoptions during 1990–2008. It exploits within-country variation in adoption in a dynamic panel framework to estimate MTFs' impacts on aggregate as well as sectoral measures of fiscal performance. We find that on average multiyear budgeting improves budget balance by about 2 percentage points with more advanced MTF phases having a larger impact. Higher-phase MTFs also reduce health spending volatility, while only the top-phase MTF has a measurable impact on health sector technical efficiency.