G4 Doctoral dissertation (monograph)

Herders in the budgetary commons : the fiscal policy consequences of multiparty government in the European Union

List of Authors: Ylisalo Juha

Publisher: University of Turku

Place: Turku

Publication year: 2017

ISBN: 978-951-29-7054-4

eISBN: 978-951-29-7055-1

URL: http://urn.fi/URN:ISBN:978-951-29-7055-1


In contemporary political economy, it is often argued that multiparty government contributes to sustainability problems in the public economy. This is because parties have incentives to offer targeted policies to narrow-based voter groups while neglecting a large share of the costs associated with such policies. The structure of the situation is arguably similar to overconsumption and under-saving problems often encountered in the management of natural resources, which has given rise to the notion of the budgetary or fiscal common-pool problem. In this view, multiparty government is associated with increases in public spending, taxes and debt as well as persistent budget deficits; such phenomena becoming clearer as the number of parties in government grows.

This work challenges the view by arguing that such problems are not inherent features of multiparty politics, but rather follow from the combination of multiparty decision making and the breakdown of programmatic linkages between voters and political parties. In particular, when corruption and other forms of favouritism and partiality are prevalent in the public sector, the credibility of programmatic goals and statements that parties make decreases. This creates room for non-programmatic, distributive objectives and hence encourages the exploitation of the tax base, which becomes visible in empirical associations between the number of government parties and fiscal policy aggregates. In contrast, impartial and efficient state institutions make it possible to present and implement programmes with far-reaching and universalistic implications, whereby the programmatic stances rather than the number of government parties explain policy outcomes. This makes it possible to manage the ‘budgetary commons’ in a sustainable way.

These arguments are tested on data that covers the current 28 member states (as of 2017) of the European Union from the early 1970s or mid-1990s to 2012. The results are largely in line with the expectations, although the effects of political variables differ somewhat between the post-communist member states and the rest. The number of parties in government explains fiscal policy outcomes mainly in those post-communist countries where favouritism and partiality in the use of state authority are most prevalent. However, in the post-communist area these effects disappear when state institutions are more impartial, whereby the effects of variables capturing programmatic aspects of politics have explanatory power. Outside the post-communist area, political variables generally have little effect on fiscal policy aggregates, especially since the early 1990s. However, in that group of countries, those countries with most impartial state institutions have been most likely to adopt stringent and encompassing fiscal rules.

Last updated on 2021-24-06 at 08:51