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Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union

  • Mark Hallerberg
  • Jurgen von Hagen

A rough consensus has emerged that states with proportional representation systems are" likely to run larger deficits than plurality states. We argue that electoral institutions matter because" they restrict the type of budgetary institution at the governmental phase which a state has at its" disposal. Cabinet members may willingly delegate authority to a finance minister who can monitor" spending ministers and punish those who defect' in a process we label delegation procedure is feasible in states where one-party governments are the norm. Such states usually have" plurality electoral systems. In multi-party governments, which are common in states with" proportional representation, the coalition members are not willing to delegate to one actor the ability" to monitor and punish the others. Negotiated targets in the form of fiscal contracts provide an" alternative in multi-party governments. Pooled time series regression results for the current" European Union states in the period 1981-94 support our contention that it is the presence or absence" of one of these budgetary institutions, rather than the plurality/proportional representation" dichotomy, which has the greatest impact on debt levels.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6341.

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Date of creation: Dec 1997
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Publication status: published as Fiscal Institutions and Fiscal Performance. Poterba, James M., and Jurgenvon Hagen, eds., Chicago: The University of Chicago Press, 1999,pp. 209-232.
Handle: RePEc:nbr:nberwo:6341
Note: PE
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  1. Alberto Alesina & Ricardo Hausmann & Rudolf Hommes & Ernesto Stein, 1996. "Budget Institutions and Fiscal Performance in Latin America," NBER Working Papers 5586, National Bureau of Economic Research, Inc.
  2. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
  3. Guido Tabellini & Alberto Alesina, 1988. "Voting on the Budget Deficit," UCLA Economics Working Papers 539, UCLA Department of Economics.
  4. de Haan, Jakob & Sturm, Jan-Egbert, 1997. "Political and economic determinants of OECD budget deficits and government expenditures: A reinvestigation," European Journal of Political Economy, Elsevier, vol. 13(4), pages 739-750, December.
  5. International Monetary Fund, 1996. "Budget Processes and Commitment to Fiscal Discipline," IMF Working Papers 96/78, International Monetary Fund.
  6. Edin, Per-Anders & Ohlsson, Henry, 1991. "Political determinants of budget deficits: Coalition effects versus minority effects," European Economic Review, Elsevier, vol. 35(8), pages 1597-1603, December.
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