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Political Fragmentation and Government Spending: Bringing Ideological Polarization into the Picture

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  • Marcela Eslava
  • Oskar Nupia

Abstract

The literature has come to no agreement about the empirical validity of the so-called weak government hypothesis. According to this hypothesis, political fragmentation should lead to higher government expenditure. With the aim of reconciling the empirical evidence with theory, in this paper we discuss and test a new hypothesis about this relationship: that fragmentation should matter for public spending only to the extent that the degree of polarization is high enough. Our results for a sample of presidential democracies show that a marginal change in the level of fragmentation in the governing coalition affects positively the size of the budget, but only if there is some degree of polarization. We also find that what matters for fiscal policy in presidential democracies is the degree of fragmentation and polarization within the governing coalition, rather than in the legislature at large. For parliamentary democracies we find erratic patterns for the relationship between fragmentation and public spending. Our results suggest interesting differences between presidential and parliamentary systems.

Suggested Citation

  • Marcela Eslava & Oskar Nupia, 2010. "Political Fragmentation and Government Spending: Bringing Ideological Polarization into the Picture," Documentos CEDE 6713, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:006713
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    Cited by:

    1. Grechyna, Daryna, 2021. "Mandatory spending, political polarization, and macroeconomic volatility," European Journal of Political Economy, Elsevier, vol. 68(C).
    2. Marcela Eslava, 2011. "The Political Economy Of Fiscal Deficits: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 645-673, September.
    3. Francois Facchini, 2018. "What Are the Determinants of Public Spending? An Overview of the Literature," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(4), pages 419-439, December.
    4. Wasniewski, Krzysztof, 2016. "The economic power of veto players – the connection between fiscal policies, and political systems," MPRA Paper 69849, University Library of Munich, Germany.
    5. Tjaša Bjedov & Simon Lapointe & Thierry Madiès, 2014. "The impact of within-party and between-party ideological dispersion on fiscal outcomes: evidence from Swiss cantonal parliaments," Public Choice, Springer, vol. 161(1), pages 209-232, October.
    6. Qian, Rong, 2012. "Why do some countries default more often than others ? the role of institutions," Policy Research Working Paper Series 5993, The World Bank.
    7. Agata Szymańska, 2021. "Determinants of General Government Social Spending: Evidence from the Eurozone," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 4, pages 508-528.

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    More about this item

    Keywords

    Common-pool resource problem; government spending; politicalfragmentation; ideological polarization;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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