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Minority governments and budget deficits: The role of the opposition

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  • Falcó-Gimeno, Albert
  • Jurado, Ignacio
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    Abstract

    When governments are in a parliamentary minority they have to negotiate with opposition parties over the annual budget. We argue that, as a consequence, the preferences of the opposition concerning fiscal outcomes should be reflected in the yearly budget balances. We present a theoretical argument in which the opposition faces a trade-off. It has a short-term interest in deficits since they can signal a weak government, but a long-term aversion to them because, if they reach office, they will have to deal with the burden of increased debt. Empirically, we find that opposition parties affect deficit outcomes depending on their probability of governing in the next term and the weakness of the incumbent government. When the opposition is mainly concentrated in one party, it is likely that it will take over the government and this will make the opposition deficit-averse in the current period. However, if the minority government is a coalition, then a concentrated opposition might see deficits as an opportunity to reach office earlier and might be willing to pass budgets with deficit.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Political Economy.

    Volume (Year): 27 (2011)
    Issue (Month): 3 (September)
    Pages: 554-565

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    Handle: RePEc:eee:poleco:v:27:y:2011:i:3:p:554-565

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    Web page: http://www.elsevier.com/locate/inca/505544

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    Keywords: Deficits Minority governments Opposition Budget approval;

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    Cited by:
    1. Shun-ichiro Bessho & Kimiko Terai, 2013. "Fiscal restraints by advisors," Economics of Governance, Springer, Springer, vol. 14(3), pages 205-232, August.
    2. Baskaran, Thushyanthan, 2013. "Coalition governments, cabinet size, and the common pool problem: Evidence from the German states," European Journal of Political Economy, Elsevier, Elsevier, vol. 32(C), pages 356-376.

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