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Politics, Government Size, and Fiscal Adjustment in Industrial Countries

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  • Anthony Annett
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    Abstract

    It is now well established that political and institutional factors matter for fiscal outcomes. Following a review of the literature, this paper examines the relationship between a variety of political-institutional variables and fiscal aggregates-encompassing the overall balance as well as expenditure and revenue and their various components-across 19 industrial countries over the past two decades. It finds strong effects on fiscal policy from such factors as type of electoral system, degree of legislative or government fragmentation, and stability of government. Some of the strongest results emerge for certain components of expenditure, such as transfers, and for the balance between labor and consumption taxation. There are clear relationships between the type of political system and choice of tax and expenditure system. The paper also examines fiscal adjustment since the late 1980s in light of these political factors, finding some evidence of a reversal in trend, but only when growth has been high or when debt has become problematic.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/162.

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    Length: 36
    Date of creation: 01 Sep 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/162

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    Keywords: Fiscal policy; Political economy; expenditure; taxation; fiscal adjustment; total expenditure; government spending; fiscal balance; fiscal performance; fiscal rules; tax burden; budgetary institutions; expenditure levels; budget deficits; tax share; public expenditure; composition of government spending; fiscal outturns; fiscal institutions; fiscal outcomes; fiscal discipline; government expenditure; budget deficit; public spending; fiscal transparency; tax rates; fiscal consolidation; fiscal policy outcomes; national budget; fiscal deficits; public expenditure management; fiscal profligacy; fiscal position; taxes on labor; fiscal affairs department; expenditure management; fiscal adjustments; public deficits; expenditure adjustment; fiscal positions; fiscal indiscipline; fiscal variable; fiscal affairs; budgetary process; government budget deficit; expenditure ratios; fiscal targets; budgetary rules; fiscal policy coordination; budgetary consolidation; fiscal authorities; expenditure restraint; public debt; fiscal sustainability; fiscal criteria; government revenue; fiscal aggregates; fiscal crises; tax base; composition of expenditure; fiscal policy frameworks; fiscal responsibility; fiscal variables; reduction in transfers; expenditure management reform; consumption expenditure; primary expenditure; government budget; public expenditure management reform; fiscal expansions; public finance; fiscal experiences; composition of government expenditure; loose fiscal policy; expenditure ratio; fiscal tightening; tax system; budget balance; long-term fiscal sustainability; expenditures; structural fiscal; fiscal convergence;

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    1. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
    2. Hallerberg, Mark, 2000. "The importance of domestic political institutions: Why and how Belgium and Italy qualified for EMU," ZEI Working Papers B 10-2000, ZEI - Center for European Integration Studies, University of Bonn.
    3. Ernesto Stein & Ernesto Talvi & Alejandro Grisanti, 1999. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 103-134 National Bureau of Economic Research, Inc.
    4. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR & CES & MSH, vol. 15(30), pages 47-104, 04.
    5. Henning Bohn & Robert P. Inman, 1996. "Balanced Budget Rules and Public Deficits: Evidence from the U.S. States," NBER Working Papers 5533, National Bureau of Economic Research, Inc.
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    10. Nicola Persico & Alessandro Lizzeri, 2001. "The Provision of Public Goods under Alternative Electoral Incentives," American Economic Review, American Economic Association, vol. 91(1), pages 225-239, March.
    11. Andres Velasco, 1999. "A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 37-58 National Bureau of Economic Research, Inc.
    12. Roberto Perotti & Massimo V. Rostagno & Gian-Maria Milesi-Ferretti, 2001. "Electoral System and Public Spending," IMF Working Papers 01/22, International Monetary Fund.
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    17. Ricardo Hausmann & Alberto Alesina & Rudolf Hommes & Ernesto H. Stein, 1998. "Budget Institutions and Fiscal Performance in Latin America," Research Department Publications 4160, Inter-American Development Bank, Research Department.
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    20. de Haan, Jakob & Sturm, Jan-Egbert, 1994. " Political and Institutional Determinants of Fiscal Policy in the European Community," Public Choice, Springer, vol. 80(1-2), pages 157-72, July.
    21. Yianos Kontopoulos & Roberto Perotti, 1999. "Government Fragmentation and Fiscal Policy Outcomes: Evidence from OECD Countries," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 81-102 National Bureau of Economic Research, Inc.
    22. Henning Bohn & Robert P. Inman, . "Balanced Budget Rules and Public Deficits: Evidence from the U.S. States (Reprint 060)," Rodney L. White Center for Financial Research Working Papers 10-96, Wharton School Rodney L. White Center for Financial Research.
    23. Chari, V V & Jones, Larry E & Marimon, Ramon, 1997. "The Economics of Split-Ticket Voting in Representative Democracies," American Economic Review, American Economic Association, vol. 87(5), pages 957-76, December.
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    25. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't the US Have a European-Style Welfare System?," NBER Working Papers 8524, National Bureau of Economic Research, Inc.
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    28. repec:fth:eeccco:96 is not listed on IDEAS
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    Citations

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    Cited by:
    1. Anthony Annett, 2006. "Enforcement and the Stability and Growth Pact," IMF Working Papers 06/116, International Monetary Fund.
    2. Robert Lavigne, 2006. "The Institutional and Political Determinants of Fiscal Adjustment," Working Papers 06-1, Bank of Canada.
    3. Anthony Annett, 2007. "Toward a Robust Fiscal Framework for Iceland," IMF Working Papers 07/235, International Monetary Fund.
    4. Gnangnon, Sèna Kimm, 2014. "The Effect of Development Aid Unpredictability and Migrants’ Remittances on Fiscal Consolidation in Developing Countries," World Development, Elsevier, vol. 54(C), pages 168-190.
    5. Sèna Kimm Gnangnon, 2012. "The Effect of Development Aid Unpredictability and Migrants' Remittances on Fiscal Consolidation in Developing Countries," Working Papers halshs-00677108, HAL.
    6. Lavigne, Robert, 2011. "The political and institutional determinants of fiscal adjustment: Entering and exiting fiscal distress," European Journal of Political Economy, Elsevier, vol. 27(1), pages 17-35, March.

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