Coalition governments,cabinet size,and the common pool problem: Evidence from the German states

The theoretical literature on common pool problems in fiscal policy suggests that government fragmentation increases public expenditures. In parliamentary regimes, the fragmentation hypothesis refers to (i) coalition governments and (ii) cabinet size. This paper explores the effect of coalition governments and cabinet size on public expenditures with panel data covering all 16 German states over the period 1975–2010. Identification is facilitated by the large within-variation in the incidence of coalition governments and the size of the cabinet in the German states. In addition, I exploit a feature of state electoral laws to construct a credible instrument for the likelihood of coalition governments.     

Continuity and Change: Labour Market Programs and Education Expenditure

Since 1971 Australian governments have varied expenditure on labour market programs and education. This article attempts to explain these changes in the context of several straightforward hypotheses concerned with political processes. In both policy areas the evidence is generally consistent with four views: that ALP governments spend relatively more than coalition governments; that ALP expenditure is more likely to be directed to the public sector, and coalition expenditure to the private sector; that governments of both political persuasions tend to move towards their opponents' position in budgets immediately preceding elections; and that, after the marked changes initiated in the 1972 to 1974 period, the parties have become increasingly similar in expenditure terms. Apparently there have been important differences between the political parties in government, but these distinctions have become less clear–cut over recent years.     

COALITION GOVERNMENTS AND SOVEREIGN DEBT CRISES

This article examines the domestic politics of sovereign debt crises. I focus on two alternative mechanisms that aggregate the preferences of domestic actors over debt repayment: single-party versus multiparty coalition governments. I uncover a very strong empirical regularity using cross-national data from 48 developing countries between 1971 and 1997. Countries that are governed by a coalition of parties are less likely to reschedule their debts than those under single-party governments. The effect of multiparty coalitions on sovereign defaults is quantitatively large and roughly of the same order of magnitude as liquidity factors such as debt burden and debt service. These results are robust to numerous specifications and samples.     

How Do Political Factors Shape the Bank Risk–Sovereign Risk Nexus in Emerging Markets?

This paper studies the role of political factors for determining the impact of banking sector distress on sovereign bond yield spreads for a sample of 19 emerging market economies in the period 1994–2013. Using interaction models, I find that the adverse impact of banking sector distress on sovereign solvency is less pronounced for countries with a high degree of political stability, a high level of power sharing within the government coalition, a low level of political constraint within the political system, and for countries run by powerful and effective governments. The electoral cycle pronounces the bank risk–sovereign risk transfer.     

Stability of coalition governments in Western Europe: 1945–1986

The duration and type of coalition governments in twelve European countries in the period 1945–1986 are considered. It is argued that the distribution of party size, on a one-dimensional policy dimension, gives an indication of the qualitative features of the bargaining process between parties and that this determines the type of coalition that forms and the average duration of government. On this basis the twelve countries are divided into four groups (namely unipolar, bipolar, multipolar and fragmented systems).     

Do large cabinets favor large governments? Evidence on the fiscal commons problem for Swiss Cantons

The fiscal commons problem is one of the most prominent explanations of excessive spending in political economics. For a panel of the 26 Swiss cantons over the 1980–1998 periods, this paper explores the role of fragmented governments on fiscal policy outcomes. We distinguish between two variants of fragmented governments: cabinet size and coalition size. In addition, we analyze whether constitutional rules for executive and legislature as well as formal fiscal restraints shape the size of government and how different rules interact with fragmentation. The results indicate that the number of ministers in the cabinet is positively associated with the size of government. While fiscal referendums effectively restrict the size of government, there is also evidence that fiscal referendums relax the fiscal commons problem to some extent.     

Single‐Party Rule,Public Spending,and Political Rents: Evidence from Finnish Municipalities*

In this paper, I investigate the differences in public spending and extraction of political rents between single‐party and coalition governments. Common pool theories predict that coalitions tend to spend more and extract more rents than single‐party governments. Using data from Finnish municipalities for the years 1997–2012 and a regression discontinuity design approach tailored for proportional elections, I provide causal evidence consistent with the theoretical predictions.     

The reduction of the UK budget deficit: a human rights perspective

This paper contributes to new thinking in economics by employing a human rights perspective to examine the budget deficit reduction strategy of the UK coalition government, as set out in 2010 in the June budget and October Spending Review. Focusing on economic and social rights, the paper explains the human rights obligations of governments and key human rights principles. As examples of how they should be applied to examine the deficit reduction strategy, it examines the implications of the policy changes for child poverty and gender equality, and finds that in both cases there is evidence to suggest non-compliance with the human rights obligations of the UK government.     

Coalition governments and comparative constitutional design

In this paper we present a structural approach to the study of government formation in multi-party parliamentary democracies. The approach is based on the estimation of a stochastic bargaining model which we use to investigate the effects of specific institutional features of parliamentary democracy on the formation and dissolution of coalition governments. We illustrate our methodology by presenting the results of two (counterfactual) experiments of comparative constitutional design.     

Proto-coalition bargaining and the core

In the proto-coalition model of government formation, formateur F appoints a proto-coalition and asks its members whether to start negotiating a coalition contract. If all accept, then the proto-coalition forms and starts negotiating; otherwise, a caretaker government assumes office. I extend this model by allowing F to revise the chosen proto-coalition after rejections, that he states pre-conditions for the subsequent negotiations, and that F??s opponents may publicly pre-commit to accept/reject certain proposals. The set of equilibrium outcomes is identified as the core if F??s opponents can pre-commit and as the convex hull of the core if they cannot pre-commit credibly. This extended model eliminates two flaws of the standard model: it explains why F cannot always install his favored coalition (whatever the status quo) and why ??important?? coalition members may have more bargaining power in the subsequent negotiations than others.     

Environmental Taxes and First-Mover Advantages

This paper studies whether governments prefer to be leaders or followers in environmental policies. To analyze this question I assume transboundary pollution and two countries that have to decide whether to set environmental taxes sequentially or simultaneously. When taxes are set sequentially an effect, denoted as the sequential setting effect, arises that raises the equilibrium taxes. I show that whether governments prefer to be leaders or followers in taxes depends on the degree to which environmental pollution spills over to trading partners. When this overspill is low enough, taxes are strategic complements and both the leader and the follower obtain greater welfare than under a simultaneous tax setting. However, the leader country obtains greater welfare than the follower. In this case, governments set taxes sequentially. When the degree to which environmental pollution spills over to trading partners is high enough, taxes are strategic substitutes and governments set taxes simultaneously. In this case, each government wants to avoid becoming the follower in taxes.     

Derivatives and the financialisation of the Italian state

The existing literature on financialisation has devoted insufficient attention to how governments wield the market-based practices and technologies of financial innovation to pursue statecraft objectives. Because of this inattention, scholars have missed the opportunity to examine a crucial facet of the financialisation of the state. To remedy this limitation, the present article investigates how and why the Italian government designed derivatives-based strategies during the 1993–9 period. It argues that these tactics gained momentum in the context of the political struggles that developed in Italy beginning in the late 1980s. In particular, the study shows how a neoliberal-reformist alliance came to power and used financial innovation to comply with the Economic and Monetary Union (EMU) admission criteria. EMU dynamics enhanced the power position of the neoliberal-reformist coalition vis-à-vis the country's traditional political and business establishment. This work offers insights that go beyond the specificities of the Italian case. It encourages further research on how governments in other countries simultaneously exposed state institutions to financial speculation and gained access to a range of new instruments through which they could manage state affairs in a financialised manner.     

Blame-game politics in a coalition government

Delays in the adoption of reforms is an important question in political economics. This paper explores this issue in the context of a representative democracy where the government is a coalition and citizens observe neither the decision-making process, nor politicians' preferences for a reform. We show that a coalition member who favors a reform may nonetheless choose to veto its adoption (thus delaying it until after the next election) and let his coalition partners share the blame for the non-adoption. We refer to this strategy as blame-game politics. We then identify three reasons for a politician to play the blame-game. One is to make an issue salient in the next election. A second reason is to avoid a split in his electorate, which is accomplished by hiding his stance on an issue. A third reason is to enhance ‘bargaining power’ during the formation of the next government.     

What Drives Public Employment in Developing Countries?

An excessive level of employment is a frequent complaint made about public-sector governance in developing economies. The explanation typically offered is that governments use public-sector employment as a tool for generating and redistributing rents. This article suggests an alternative hypothesis: relatively safe government jobs represent partial insurance againstundiversifiable external risk faced by the domestic economy. I show that countries that are greatly exposed to external risk have higher levels of government employment and have experienced faster rates of growth of government consumption. The basic finding on this (partial) correlation is robust against the hypotheses typically offered.     

Partisan politics: The empirical evidence from OECD panel studies

This paper describes the empirical evidence on partisan politics in OECD panel studies. I elaborate on the research designs, the measurement of government ideology and why the empirical studies did not derive causal effects. Discussing about 100 panel data studies, the results indicate that leftwing and rightwing governments pursued different economic policies until the 1990s: the size and scope of government was larger when leftwing governments were in power. Partisan politics have not disappeared since the 1990s, but have certainly become less pronounced. In particular, government ideology still seems to influence policies such as privatization and market deregulation. I discuss the consequences of declining electoral cohesion and what future research needs to explore.     

“When it rains,it pours”: Fiscal policy,credit constraints and business cycles in emerging and developed economies

Fiscal procyclicality, meaning co-movement between government expenditure and macroeconomic fundamentals, is an important feature of business cycle dynamics for emerging and poor economies. I estimate a panel SVAR to investigate the reasons for fiscal procyclicality. The analysis sheds light on the role of external financial constraints in shaping fiscal policy. My findings suggest that the response of emerging governments to output fluctuations is similar to that of developed governments. However, emerging governments curtail spending in response to increases in the sovereign borrowing rate, which forces their consumption expenditure to act more procyclically. Using counterfactual analysis, I show that the key forces behind fiscal procyclicality are the sensitivity of government spending to international borrowing costs and the procyclical nature of these costs for emerging economies.     

A note on stable and sustainable global tax coordination with Leviathan governments

Itaya et al. (2014) study the conditions for sustainability and stability of capital tax coordination in a repeated game model with tax-revenue maximizing governments. One of their major results is that the grand tax coalition is never stable and sustainable. The purpose of this note is to prove that there are conditions under which the grand tax coalition is stable and sustainable in Itaya et al.'s model.     

Pawns Take Queen: The Destabilizing Effects of Regional Parties in Europe

Regional parties encourage government instability in Europe because they make extreme demands on governments for regional autonomy. These demands are different from the demands other parties make and are also more difficult to accommodate, because they require national governments to relinquish decision-making authority over certain issues, whereas the demands of other parties only require government to adjust their policies in some direction. Regional parties are also unlikely to compromise their demands because they do not have the tools available to them that other types of parties have. I support this argument through a statistical analysis of twenty-four democracies in Europe, showing that the presence of regional parties in government increases government instability and that the saliency of autonomy issues affects stability only if it is mediated through regional parties. JEL classification: A, C Regions are defined as the political regions of a country – that is, the level of government directly below the national level of government in a country.     

General or central government? Empirical evidence on political cycles in budget composition using new data for OECD countries

Previous studies used general government data to examine whether national governments’ electoral motives and ideology influenced budget composition in OECD countries. General government data includes, however, the state and local level. Using new data for general and central government over the period 1995–2016, I reexamine political cycles in budget composition. The results suggest that, both at the general and central government level, leftwing governments spent more on education and less on public services than rightwing governments. Defense expenditure was somewhat lower under leftwing than rightwing governments and in election years; especially in federal states. Effects of government ideology on the individual expenditure categories are larger at the central than general government level. Scholars need to re-examine results on ideology-induced effects that have been derived from general government data where central government data should have been used.     

Dynamics of public opinion and policy response under proportional and plurality elections

We compare the patterns of adjustment of government policy to changes in public opinion in the Netherlands and the United Kingdom. These countries are similar in many ways, except that the United Kingdom has plurality elections and single-party government, while the Netherlands has proportional representation (PR) and coalition government. This provides the first application of the Macro Polity approach to a country with PR elections. We find that government policy in the Netherlands is highly responsive to public opinion. This cannot be the result of alternation of government, but instead must be the result of some other process, such as coalition bargaining. In the United Kingdom, however, the dynamic of adjustment is far more complex. Alternation of government does not produce responsiveness, but rather seems to get in the way of it. This leads to an over-correction dynamic in which policy can be out of line with public opinion for long periods of time.