Studying the Construction Budget Allocation Pattern in the Parliamentary Budget Approval Process; Using a Spatial Econometric Approach

Document Type : Research Paper

Authors

1 Ph.D. Student in Economics, Department of Economics, Faculty of Economics and Administrative Science, Ferdowsi University of Mashhad, Mashhad, Iran.

2 Assistant Professor, Department of Economics, Faculty of Economics and Administrative Science, Ferdowsi University of Mashhad, Mashhad, Iran.

3 Associate Professor, Department of Economics, Faculty of Economics and Administrative Science, Ferdowsi University of Mashhad, Mashhad, Iran

4 Assistant Professor, Department of Economics, Faculty of Economics and Administrative Science, Ferdowsi University of Mashhad, Mashhad, Iran

Abstract

Purpose: While the parliament role in budgeting process is defined by countries’ constitution or other relevant laws, in almost all democratic societies, it is necessary for politicians, especially individual representatives, to prove themselves to voters that they deserve a parliamentary position by budgeting in favor of economically vulnerable groups. Discretionary earmarked budgeting is deemed as a suitable means of showing MPs’ competence. This article aims to study the budgeting behavior of the individual representatives during the 9th and 10th terms of the Islamic Consultative Assembly in Iran (2012-2019). The study focuses on the increase of the figures in the first appendix documents of the national budget bill and the dedication of the provincial construction budget. The theoretical framework is based on the responsibility of individual representatives reported in the literature on distributive politics. To this end, three defined criteria are used to consider equity-efficiency trade-off and the deviations from it. So, the research question is ‘which one plays a main role in the geographic distribution of government budget across 31 province of Iran?’
Methodology: Spatial econometrics is concerned with spatial externalities of economic variables which often arise when observations are collected from points or regions located in space. Such spatial externalities take the form of spatial interaction (spatial autocorrelation) or spatial structure (spatial heterogeneity) in regression models, cross sectional data, or panel data. A spatial weighted matrix is a representation of the spatial structure of data which crucially depends on the definition of a set of neighborhoods in each observation. This research uses a rook contiguity-based spatial weighted matrix which defines neighbors with the existence of a common edge between two spatial units. In this research, the dependent variable is the change in the provincial construction budget based on the comparison of the bill and the budget act in the 9th and 10th terms of the Iranian Islamic Consultative Assembly (2012-2019). The independent variables include the efficiency index (the annual share of each province's GDP in the total country's GDP), the equality index (the ratio of the country's GDP per capita to the province's GDP per capita), and the political index (the ratio of the number of the effective MPs in a province). The spatial panel data equation is also derived.
Findings and discussion: Applying Spatial Durbin Model with fixed effects confirms the effects of equity-efficiency trade-off and the deviation from it due to political factors on the provincial construction budget. In other words, any increase in the provincial share of the country's GDP and in the number of provincial representatives would have significant effects on the amount of the provincial construction fund. However, the equality criterion is not statistically significant. It seems that the MPs’ behavior were not compatible with some of their duties, which relates to following regional issues in order to reduce inequality and remove deprivation in the given regions. As a result, MPs tend to favor the provinces that have a higher level of development over those with greater needs.
Conclusions and policy implications: This paper has analyzed the main determinants of geographic distribution of government budget across 31 provinces in Iran. Based on the results, due to the significance influence of political variables, the Iranian parliament has deviated from the task of monitoring and evaluating the government's financial performance in the budgeting process, which would disrupt the programmatic function of the budget. It seems that MPs use governmental budget for future electoral supports via parliamentary authorities. In addition, as the only politicians who are familiar with regional needs, MPs are expected to follow up the constituency issues and take equity indices into account. To achieve this goal, some structural reforms need to be made.

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References

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The Journal of Economic Policy
Volume 16, Issue 32
March 2025
Pages 235-261

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