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Table 5 shows how the index is constructed and Figure 3 illustrates the index of effectiveness of AAAs in ten Latin American countries. The Brazilian TCU and Chilean CGR perform above the regional average, while the Argentine AGN’s performance is significantly worse.

TABLE 5 AND FIGURE 3 ABOUT HERE This data highlight three key issues.

First, the general index and its sub-indices reveal that, while formal political independence and enforcement capabilities are not necessarily lacking, the low credibility of audit work and the inadequate timeliness of audit findings represent a major hindrances. This finding reflects an important gap between formal powers and actual practices. Brazil, Chile, Colombia, and Costa Rica possess the most effective AAAs in our sample, while Argentina, Peru, Ecuador, and, to a lesser extent Mexico, have weaker AAAs.

Second, agency performance does not appear predetermined by the model of external audit agency chosen by a given country, as shown in Table 6. While Ecuador, Peru, Costa Rica, Mexico, Chile and Colombia follow the monocratic model, their performance differs substantially. Similarly, while Brazil and El Salvador follow the court model with quasi- judicial powers, they exhibit different performance.

Third, institutional arrangements vary greatly within ideal types and these variations within ideal types have great influence on organizational performance. These findings appear to suggest that other factors linked to the broader governance context and the agencies’ trajectory of institutional development have greater explanatory power on the relative performance of AAAs across countries and over time.


Assessing impact

Statistical evidence from cross-country correlations suggests a strong link between, on the one hand, the effectiveness of AAAs and, on the other hand, the quality of fiscal governance and budget institutions. We assess the impact of AAAs both on fiscal performance in terms of budget outcomes and on fiscal governance in terms of budget processes. We use quantitative and qualitative measures of budget credibility, such as the level of deficit, volatility, centralization and transparency of the budget, as proxy indicators of the performance of fiscal policy. Proxy indicators for institutional quality include the indicators of the rule of law, bureaucratic efficiency, corruption control and constraints on executive power (Kaufmann, Kraay, and Mastruzzi 2005; Henisz 2004).

We find that the quality of external auditing has only a partial influence on fiscal outcomes in terms of budget deficits. It does nevertheless have greater impact on the quality of the budget processes in terms of budget transparency, as shown in Figure 4. Surprisingly, external auditing does not appear to be correlated with the strength of legislative budgetary powers, which would seem to indicate an important disjuncture between external auditing and legislative oversight. In fact, there appears to be a stronger association with the budgetary powers of the president and the degree of centralization of the budgetary system in the executive. It could be argued that greater centralization in budgetary system, and therefore greater executive predominance in public budgeting, requires more robust external auditing systems to check executive discretion and compensate for weaknesses in legislative oversight.


However, we find an important influence of external auditing on the quality of fiscal governance in qualitative terms. The data reveals a strong correlation between the credibility of external auditing and the quality of fiscal governance in terms of the efficiency of the bureaucratic (Figure


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