IDEAS home Printed from https://ideas.repec.org/p/diw/diwwpp/dp1188.html
   My bibliography  Save this paper

The Perfect Finance Minister: Whom to Appoint as Finance Minister to Balance the Budget?

Author

Listed:
  • Beate R. Jochimsen
  • Sebastian Thomasius

Abstract

The role and influence of the finance minister within the cabinet are discussed with increasing prominence in the recent theoretical literature on the political economy of budget deficits. It is generally assumed that the spending ministers can raise their reputation purely with new or more extensive expenditure programs, whereas solely the finance minister is interested to balance the budget. Using a dynamic panel model to study the development of public deficits in the German states between 1960 and 2009, we identify several personal characteristics of the finance ministers that significantly influence budgetary performance. Namely her professional background seems to affect budget deficits. During times of fiscal stress, our results can guide prime ministers in the nominating of finance ministers in order to assure sound budgeting.

Suggested Citation

  • Beate R. Jochimsen & Sebastian Thomasius, 2012. "The Perfect Finance Minister: Whom to Appoint as Finance Minister to Balance the Budget?," Discussion Papers of DIW Berlin 1188, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1188
    as

    Download full text from publisher

    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.392957.de/dp1188.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alesina, Alberto Francesco & Perotti, Roberto & Tavares, Jose, 1998. "The Political Economy of Fiscal Adjustments," Scholarly Articles 12553724, Harvard University Department of Economics.
    2. Niklas Potrafke, 2011. "Does government ideology influence budget composition? Empirical evidence from OECD countries," Economics of Governance, Springer, vol. 12(2), pages 101-134, June.
    3. Hayo, Bernd & Voigt, Stefan, 2013. "Endogenous constitutions: Politics and politicians matter, economic outcomes don’t," Journal of Economic Behavior & Organization, Elsevier, vol. 88(C), pages 47-61.
    4. Konstantin Sonin & Scott Gehlbach, 2004. "Businessman Candidates," Econometric Society 2004 North American Summer Meetings 178, Econometric Society.
    5. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
    6. Gohlmann, Silja & Vaubel, Roland, 2007. "The educational and occupational background of central bankers and its effect on inflation: An empirical analysis," European Economic Review, Elsevier, vol. 51(4), pages 925-941, May.
    7. Niklas Potrafke, 2011. "Public Expenditures on Education and Cultural Affairs in the West German States: Does Government Ideology Influence the Budget Composition?," German Economic Review, Verein für Socialpolitik, vol. 12(1), pages 124-145, February.
    8. Roger Congleton & Yongjing Zhang, 2013. "Is it all about competence? The human capital of U.S. presidents and economic performance," Constitutional Political Economy, Springer, vol. 24(2), pages 108-124, June.
    9. Adams, Renée B. & Ferreira, Daniel, 2009. "Women in the boardroom and their impact on governance and performance," Journal of Financial Economics, Elsevier, vol. 94(2), pages 291-309, November.
    10. Svaleryd, Helena, 2009. "Women's representation and public spending," European Journal of Political Economy, Elsevier, vol. 25(2), pages 186-198, June.
    11. Tirole, Jean, 1994. "The Internal Organization of Government," Oxford Economic Papers, Oxford University Press, vol. 46(1), pages 1-29, January.
    12. Beck, Nathaniel & Katz, Jonathan N., "undated". "Modeling dynamics in time-series-cross-section political economy data," Working Papers 1304, California Institute of Technology, Division of the Humanities and Social Sciences.
    13. 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.
    14. Timothy Besley, 2005. "Political Selection," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 43-60, Summer.
    15. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    16. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    17. repec:cup:apsrev:v:71:y:1977:i:04:p:1467-1487_26 is not listed on IDEAS
    18. Perotti, Roberto & Kontopoulos, Yianos, 2002. "Fragmented fiscal policy," Journal of Public Economics, Elsevier, vol. 86(2), pages 191-222, November.
    19. Bun, Maurice J.G. & Kiviet, Jan F., 2006. "The effects of dynamic feedbacks on LS and MM estimator accuracy in panel data models," Journal of Econometrics, Elsevier, vol. 132(2), pages 409-444, June.
    20. John Ashworth & Benny Geys & Bruno Heyndels, 2005. "Government Weakness and Local Public Debt Development in Flemish Municipalities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 395-422, August.
    21. Lars Feld & Christoph Schaltegger, 2010. "Political stability and fiscal policy: time series evidence for the Swiss federal level since 1849," Public Choice, Springer, vol. 144(3), pages 505-534, September.
    22. Eckel, Catherine C. & Grossman, Philip J., 2008. "Men, Women and Risk Aversion: Experimental Evidence," Handbook of Experimental Economics Results, Elsevier.
    23. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
    24. Blume, Lorenz & Voigt, Stefan, 2013. "The economic effects of constitutional budget institutions," European Journal of Political Economy, Elsevier, vol. 29(C), pages 236-251.
    25. Volkerink, Bjorn & De Haan, Jakob, 2001. "Fragmented Government Effects on Fiscal Policy: New Evidence," Public Choice, Springer, vol. 109(3-4), pages 221-242, December.
    26. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters,in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc.
    27. Timothy Besley & Anne Case, 1995. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 769-798.
    28. Benjamin F. Jones & Benjamin A. Olken, 2009. "Hit or Miss? The Effect of Assassinations on Institutions and War," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 55-87, July.
    29. Konstantin Sonin & Scott Gehlbach, 2004. "Businessman Candidates," Econometric Society 2004 North American Summer Meetings 178, Econometric Society.
    30. Galasso, Vincenzo & Nannicini, Tommaso, 2011. "Competing on Good Politicians," American Political Science Review, Cambridge University Press, vol. 105(01), pages 79-99, February.
    31. Harald Hau & Marcel Thum, 2009. "Subprime crisis and board (in-) competence: private versus public banks in Germany," Economic Policy, CEPR;CES;MSH, vol. 24, pages 701-752, October.
    32. Bruno, Giovanni S.F., 2005. "Approximating the bias of the LSDV estimator for dynamic unbalanced panel data models," Economics Letters, Elsevier, vol. 87(3), pages 361-366, June.
    33. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    34. Bun, Maurice J. G. & Kiviet, Jan F., 2003. "On the diminishing returns of higher-order terms in asymptotic expansions of bias," Economics Letters, Elsevier, vol. 79(2), pages 145-152, May.
    35. Harald Hau & Marcel Thum, 2009. "Subprime Crisis and Board (In-)Competence: Private vs. Public Banks in Germany," CESifo Working Paper Series 2640, CESifo Group Munich.
    36. Marianne Bertrand & Antoinette Schoar, 2003. "Managing with Style: The Effect of Managers on Firm Policies," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1169-1208.
    37. Etienne Farvaque & Hakim Hammadou & Piotr Stanek, 2011. "Selecting Your Inflation Targeters: Background and Performance of Monetary Policy Committee Members," German Economic Review, Verein für Socialpolitik, vol. 12(2), pages 223-238, May.
    38. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    39. Kajal Lahiri, 2005. "Analysis of Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 1093-1095.
    40. Giovanni S. F. Bruno, 2005. "Estimation and inference in dynamic unbalanced panel-data models with a small number of individuals," Stata Journal, StataCorp LP, vol. 5(4), pages 473-500, December.
    41. Beate Jochimsen & Robert Nuscheler, 2011. "The political economy of the German Lander deficits: weak governments meet strong finance ministers," Applied Economics, Taylor & Francis Journals, vol. 43(19), pages 2399-2415.
    42. Ronny Freier & Sebastian Thomasius, 2016. "Voters prefer more qualified mayors, but does it matter for public finances? Evidence for Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(5), pages 875-910, October.
    43. Woo, Jaejoon, 2003. "Economic, political, and institutional determinants of public deficits," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 387-426, March.
    44. Angelopoulos, Konstantinos & Economides, George & Kammas, Pantelis, 2012. "Does cabinet ideology matter for the structure of tax policies?," European Journal of Political Economy, Elsevier, vol. 28(4), pages 620-635.
    45. Seitz, Helmut, 2000. "Fiscal Policy, Deficits and Politics of Subnational Governments: The Case of the German Laender," Public Choice, Springer, vol. 102(3-4), pages 183-218, March.
    46. Maria Paola & Vincenzo Scoppa, 2011. "Political competition and politician quality: evidence from Italian municipalities," Public Choice, Springer, vol. 148(3), pages 547-559, September.
    47. Jochimsen, Beate & Nuscheler, Robert, 2005. "The Political Economy of the German Länder Deficits," Discussion Papers 2005/6, Free University Berlin, School of Business & Economics.
    48. Dreher, Axel & Lamla, Michael J. & Lein, Sarah M. & Somogyi, Frank, 2009. "The impact of political leaders' profession and education on reforms," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 169-193, March.
    49. Ronny Freier, 2011. "Incumbency as the Major Advantage: The Electoral Advantage for Parties of Incumbent Mayors," Discussion Papers of DIW Berlin 1147, DIW Berlin, German Institute for Economic Research.
    50. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 1-16.
    51. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
    52. Dalle Nogare, Chiara & Ricciuti, Roberto, 2011. "Do term limits affect fiscal policy choices?," European Journal of Political Economy, Elsevier, vol. 27(4), pages 681-692.
    53. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
    54. Hallerberg, Mark & Strauch, Rolf & von Hagen, Jurgen, 2007. "The design of fiscal rules and forms of governance in European Union countries," European Journal of Political Economy, Elsevier, vol. 23(2), pages 338-359, June.
    55. Schaltegger, Christoph A. & Feld, Lars P., 2009. "Do large cabinets favor large governments? Evidence on the fiscal commons problem for Swiss Cantons," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 35-47, February.
    56. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135-135.
    57. Barbara F. Reskin & Denise D. Bielby, 2005. "A Sociological Perspective on Gender and Career Outcomes," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 71-86, Winter.
    58. Raghabendra Chattopadhyay & Esther Duflo, 2004. "Women as Policy Makers: Evidence from a Randomized Policy Experiment in India," Econometrica, Econometric Society, vol. 72(5), pages 1409-1443, September.
    59. John Lott & W. Reed, 1989. "Shirking and sorting in a political market with finite-lived politicians," Public Choice, Springer, vol. 61(1), pages 75-96, April.
    60. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    61. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
    62. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    63. Benjamin F. Jones & Benjamin A. Olken, 2005. "Do Leaders Matter? National Leadership and Growth Since World War II," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 835-864.
    64. Hallerberg, Mark & von Hagen, Jürgen, 1997. "Electoral Institutions, Cabinet Negotiations, and Budget Deficits within the European Union," CEPR Discussion Papers 1555, C.E.P.R. Discussion Papers.
    65. Rachel Croson & Uri Gneezy, 2009. "Gender Differences in Preferences," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 448-474, June.
    66. Stanley M. Atkinson & Samantha Boyce Baird & Melissa B. Frye, 2003. "Do Female Mutual Fund Managers Manage Differently?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(1), pages 1-18.
    67. Helmut Seitz, 2008. "Die Bundesbestimmtheit der Länderausgaben," Wirtschaftsdienst, Springer;German National Library of Economics, vol. 88(5), pages 340-348, May.
    68. Etienne Farvaque & Hakim Hammadou & Piotr Stanek, 2009. "Select your Committee: the Impact of Central Bankers Background on Inflation," Economie Internationale, CEPII research center, issue 117, pages 99-129.
    69. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
    70. David A. Carter & Betty J. Simkins & W. Gary Simpson, 2003. "Corporate Governance, Board Diversity, and Firm Value," The Financial Review, Eastern Finance Association, vol. 38(1), pages 33-53, February.
    71. Galli, Emma & Rossi, Stefania P S, 2002. "Political Budget Cycles: The Case of the Western German Lander," Public Choice, Springer, vol. 110(3-4), pages 283-303, March.
    72. Christina Schneider, 2010. "Fighting with one hand tied behind the back: political budget cycles in the West German states," Public Choice, Springer, vol. 142(1), pages 125-150, January.
    73. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
    74. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
    75. Wehner, Joachim, 2010. "Cabinet structure and fiscal policy outcomes," LSE Research Online Documents on Economics 28648, London School of Economics and Political Science, LSE Library.
    76. Chappell, Henry Jr. & Havrilesky, Thomas M. & McGregor, Rob Roy, 1995. "Policymakers, institutions, and central bank decisions," Journal of Economics and Business, Elsevier, vol. 47(2), pages 113-136, May.
    77. de Haan, Jakob & Sturm, Jan-Egbert & Beekhuis, Geert, 1999. "The Weak Government Thesis: Some New Evidence," Public Choice, Springer, vol. 101(3-4), pages 163-176, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Fiscal policy; public deficit; political economy; finance minister;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp1188. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek). General contact details of provider: http://edirc.repec.org/data/diwbede.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.