Political Consensus and Fiscal Outcomes

It is becoming difficult to maintain consensus in a period of economic austerity, and this possibly challenges the ability of democratic institutions to take decisions on tough economic questions. In order to find out how political consensus influences fiscal outcomes, this article sets out to analyse the association between political consensus and public expenditure growth. The results show that political consensus is positively associated with both budgeted and actual expenditure growth, but also negatively associated with budget overruns. This indicates that political consensus comes at a cost, while at the same time politicians may be better at sticking to budgets if political consensus exists. The analysis is based on a pooled regression analysis of the local governments in Denmark in the years 2008 and 2009 using a data set combining survey data with administrative data on the local governments.