The Politics of Fiscal Responses to the Crisis of 2008–2009

The national fiscal responses to the economic crisis of 2008/2009 varied considerably. Some countries reacted with a strong demand stimulus, others intended to slash public expenditures, while a third group pursued mildly expansionary policies. There are strong reasons for governments to pursue a mildly expansionary policy. If governments depart from this default strategy in favor of a significant counter‐cyclical policy, they must be able to swiftly make decisions. Therefore, effective use of counter‐cyclical policy will be unlikely in cases where lengthy negotiations or significant compromises between governing parties with different views on economic and fiscal policy are likely. Therefore, a major determinant of the expansionary strategy is a unified government, usually in form of a one‐party government. If governments opt for pro‐cyclical policy in a major economic crisis, they do so because they have few other viable options. In this situation they tend to shift blame to international organizations.     

The Iraq Coalition of the Willing and (Politically) Able: Party Systems,the Press,and Public Influence on Foreign Policy

Media outlets in multiparty electoral systems tend to report on a wider range of policy issues than media in two‐party systems. They thus make more competing policy frames available to citizens. This suggests that a “free press” is insufficient to hold governments accountable. Rather, we should observe more challenges to the governments’ preferred frames and more politically aware citizens in multiparty democracies. Such citizens should thus be better equipped to hold their leaders accountable, relative to their counterparts in two‐party democracies. I propose a mechanism through which democratic publics can sometimes constrain their leaders in foreign policy. I test hypotheses derived from my theory with cross‐national data on the content of news coverage of Iraq, on public support for the war, and on decisions to contribute troops to the Iraq “Coalition of the Willing.” I find that citizens in countries with larger numbers of parties confronted more critical and diverse coverage of Iraq, while those with more widespread access to mass media were more likely to oppose the war and their nations likely to contribute fewer troops to the Coalition.     

The scissors crisis in public finance

The late 1970s saw the beginnings of a “scissors crisis” in public finance, i.e., a growing divergence between the expansion of government revenues and the increase in government expenditures. Unless strong measures are taken, the 1980s threaten to become the age of mega-deficits. The sluggish growth of public receipts and the buoyant development of public outlays are linked to a number of structural tendencies in the economies of the industrialized world. Efforts to close the gap have included both tax increases and expenditure cuts, but as more and more governments gain experience with the phenomenon of “fiscal cannibalism,” i.e., that taxes eat up each other, the main thrust of the counter-offensive has come to be directed against the growth of public spending. Current strategies to reinforce expenditures control include such elements as global norms, new indexing techniques, new methods of decentralizing hard choices, better methods of cash management, well-balanced policy packages, and incentives especially designed to stimulate cutbacks and policy termination.     

The Impact of Proportional Representation on Government Effectiveness: The New Zealand Experience

It is often claimed that proportional representation (PR) undermines government effectiveness, including decisional efficacy, fiscal prudence, electoral responsiveness and accountability. Drawing on New Zealand's experience since the introduction of a mixed-member proportional (MMP) electoral system in 1996, this article examines the impact of the new voting system on government effectiveness. Although government durability has been substantially reduced and the policy-making process has become more complex, governments under MMP appear to be no less able to address major policy problems or respond to changing economic circumstances. Moreover, New Zealand has maintained continuous fiscal surpluses under MMP — a radical departure from the protracted, and often large, deficits that characterised the previous two decades under a majoritarian electoral system.     

Do citizens care about government debt? Evidence from survey experiments on budgetary priorities

Ever since the Great Recession, public debt has become politicised. Some research suggests that citizens are fiscally conservative, while other research shows that they punish governments for implementing fiscal consolidation. This begs the question of whether and how much citizens care about debt. We argue that debt is not a priority for citizens because reducing it involves spending and tax trade-offs. Using a split-sample experiment and a conjoint experiment in four European countries, we show that fiscal consolidation at the cost of spending cuts or taxes hikes is less popular than commonly assumed. Revenue-based consolidation is especially unpopular, but expenditure-based consolidation is also contested. Moreover, the public has clear fiscal policy priorities: People do not favour lower debt and taxes, but they support higher progressive taxes to pay for more government spending. The article furthers our understanding of public opinion on fiscal policies and the likely political consequences of austerity.     

Reinventing Amtrak: The politics of survival

This article argues that Amtrak's design as a “quasi-public, for-profit” corporation was seriously flawed from its beginnings. The corporation was isolated from America's private railroads, and isolated from trust-funding financial mechanisms that supported highways, airports, and mass transit. It depended on powerful Democratic congressional patrons and labor union support for protection from Republican executive budget cuts. But these allies pushed Amtrak into running far more costly service than was good for its bottom line. The corporation was already engaged in an internal reorganization designed to bring it closer to its customers, when the Republican victory in the 1994 congressional election launched an external effort to reorient and restructure Amtrak. There are three possible outcomes of the two-sided reinvention process: status quo and continued slow decline; partnership based on new relationships between Amtrak, federal and state governments, and the private sector; and privatization which might still require substantial public expenditures for some time. Synchronizing the opportunities created by both the internal and the external reinvention efforts is the key to whether Amtrak can emerge as a viable and valuable provider of rail transportation in the 21st century.     

Linking strategy and performance: Developments in the New Zealand public sector

In recent decades, many governments have sought to improve their systems of strategic management and priority setting. Few of these attempts have met with unequivocal success. In particular, the systems for “whole-of-government strategizing” have not been well integrated into the ongoing budgetary processes and departmental performance management systems. In 1993—1994, as part of its comprehensive reforms of the public sector, the New Zealand government instituted a new system of strategic management. The new approach—which in part grew out of the National government's attempt to outline its long-term vision in a document titled Path to 2010—involves the ministers specifying a series of medium-term policy goals, referred to as “strategic result areas” (SRAs), and then translating these into more detailed departmental objectives, known as “key result areas” (KRAs). More specific “milestones” are subsequently identified to serve as benchmarks against which the achievement of departmental KRAs can be assessed. This article describes and evaluates this new approach and considers its possible application in other countries.     

Bureaucratic politics,innovation compatibility,and the dynamic diffusion of subnational decentralization reforms in China

Despite the widely recognized significance of policy attributes in explaining innovation diffusion, limited research has emphasized the underlying endogenous mechanisms dictating the construction of innovation attributes. This study points out that bureaucratic politics could dynamically shape an innovation's compatibility with the potential adopters and its diffusion likelihood. Based on the subnational decentralization reforms in China, we note that compared to administrative and fiscal decentralization, political decentralization is less likely to generate personal gains and more likely to negatively affect the career prospects of local officials in a layer-by-layer personnel management system. Therefore, the study speculates that political decentralization reforms have a lower level of compatibility, consequently reducing its diffusion likelihood among local governments. We confirmed our theoretical expectations by conducting an in-depth case study of the top-down diffusion of three types of “Province-Managing-County Reforms” among 102 counties in China's Henan Province (2004–2021).     

WOLF'S MODEL: Government Failure and Public Sector Reform in Advanced Industrial Democracies

Many developed nations have embarked on public sector reform programs based on the New Public Management (NPM) paradigm. This article seeks to evaluate the efficacy of NPM reform strategies as a means of dealing with the problem of “government failure” in public sector hierarchies by examining these strategies through the analytical prism provided by Wolf's theory of nonmarket failure. Drawing on the New Zealand experience, we explore the potential for NPM reform initiatives to mitigate the problems of nonmarket supply. Moreover, we examine how “autonomous policy leadership” and “advocacy coalition networks” can overcome the various obstacles to the successful implementation of reform strategies delineated by Wolf under his “conditions of nonmarket demand”. The article then focusses on the efficacy of NPM in removing, or at least reducing, the various forms of government failure identified in Wolf's taxonomic catalogue of nonmarket failure. We conclude by assessing some of the likely tradeoffs involved in the application of NPM reform programs.     

The politics of fiscal policy during economic downturns, 1981–2010

This article investigates fiscal policy responses to the Great Recession in historical perspective. It explores general trends in the frequency, size and composition of fiscal stimulus as well as the impact of government partisanship on fiscal policy outputs during the four international recessions of 1980–1981, 1990–1991, 2001–2002 and 2008–2009. Encompassing 17–23 Organisation for Economic Cooperation and Development (OECD) countries, the analysis calls into question the idea of a general retreat from fiscal policy activism since the early 1980s. The propensity of governments to respond to economic downturns by engaging in fiscal stimulus has increased over time and no secular trend in the size of stimulus measures is observed. At the same time, OECD governments have relied more on tax cuts to stimulate demand in the two recessions of the 2000s than they did in the early 1980s or early 1990s. Regarding government partisanship, no significant direct partisan effects on either the size or the composition of fiscal stimulus is found for any of the four recession episodes. However, the size of the welfare state conditioned the impact of government partisanship in the two recessions of the 2000s, with left‐leaning governments distinctly more prone to engaging in discretionary fiscal stimulus and/or spending increases in large welfare states, but not in small welfare states.     

Social spending,partisan bias and vote choice. Evidence from the US

Most models in political science and political economy assume that benefiting from public spending increases the likelihood of voting for the government. However, we do not have much empirical evidence on the conditions under which recipients of public spending reward governments for their public transfers. This article studies the electoral implications of welfare spending cuts in the early years of the Reagan Presidency, when public spending changes were particularly pronounced. Using 1982 NES data, this paper demonstrates that voters who lost public benefits punished Reagan but this only occurred when they identified with the Democratic Party. By contrast, benefit recipients not affected by government cuts were more likely to support Reagan, but again this was only significant among voters identifying with the party of government. This paper thus finds that governments cannot automatically “buy” votes by using welfare spending, the influence of which is instead cushioned by party identification.     

Policing the Bargain: Coalition Government and Parliamentary Scrutiny

Policymaking by coalition governments creates a classic principal‐agent problem. Coalitions are comprised of parties with divergent preferences who are forced to delegate important policymaking powers to individual cabinet ministers, thus raising the possibility that ministers will attempt to pursue policies favored by their own party at the expense of their coalition partners. What is going to keep ministers from attempting to move policy in directions they favor rather than sticking to the “coalition deal”? We argue that parties will make use of parliamentary scrutiny of “hostile” ministerial proposals to overcome the potential problems of delegation and enforce the coalition bargain. Statistical analysis of original data on government bills in Germany and the Netherlands supports this argument. Our findings suggest that parliaments play a central role in allowing multiparty governments to solve intracoalition conflicts.     

THE RISE AND DEMISE OF COERCIVE FEDERALISM*

Abstract: The question of how a fiscal balance might be maintained between the Commonwealth and the States exercised the minds of the framers of the Constitution before 1901 and has been of concern ever since. Centralization of financial power in the Commonwealth has resulted from decisions of the High Court of Australia especially the two Uniform Tax Cases which in 1942 established, and in 1957 reinforced, the Commonwealth's hegemony in the revenue field. This hegemony enabled the Commonwealth to influence, if not dictate, State policy initiatives by the making of conditional grants for a wide range of specific purposes under Section 96 of the Constitution. The practice of making specific purpose grants as an element in what has been called “coercive federalism” was adopted in varying degree by the Commonwealth during the years between 1943 and 1975. The “new federalism” policies of the present government have as their objective the reversal of this practice and in its place the restoration of State automomy in the expenditure of a pre-determined share of income tax revenues. Some of the problems entailed in the withdrawal of specific purpose grants are outlined, and the paper also suggests an institutional mechanism to maintain a proper fiscal balance between Commonwealth and States as part of the “new federalism”.     

The Impact of Parties and Elections on Municipal Debt Policy in Mexico

Opportunistic electoral fiscal policy cycle theory suggests that all subnational officials will raise fiscal spending during elections. Ideological partisan fiscal policy cycle theory suggests that only left‐leaning governments will raise election year fiscal spending, with right‐leaning parties choosing the reverse. This article assesses which of these competing logics applies to debt policy choices. Cross‐sectional time‐series analysis of yearly loan acquisition across Mexican municipalities—on statistically matched municipal subsamples to balance creditworthiness across left‐ and right‐leaning governments—shows that all parties engage in electoral policy cycles but not in the way originally thought. It also shows that different parties favored different types of loans, although not always according to partisan predictions. Both electoral and partisan logics thus shape debt policy decisions—in contrast to fiscal policy where these logics are mutually exclusive—because debt policy involves decisions on multiple dimensions, about the total and type of loans.     

Tax decentralization and local government size

This paper investigates the relationship between fiscal federalism and the sizes of local governments. While many empirical studies emphasized that grants encourage the growth of local public spending and local taxes constrain it, they are more silent regarding the effects of different types of tax autonomy. The paper addresses this issue by arguing that tax decentralization as organized on tax bases used only by local governments (tax-separation), rather than on tax-base sharing, would restrain local public expenditures. Using an unbalanced panel of OECD countries, the key finding is that only property taxes—mostly based on a “tax-separation” scheme—seem to favor smaller local governments. Thus, while tax decentralization is a necessary condition for limiting the growth of local governments, it does not appear sufficient, as tax-separation schemes among government levels would in fact be required.     

Intergovernmental Fiscal Relations: Coordination Failures and Fiscal Outcomes

This article estimates the fiscal impact of coordination failures in intergovernmental fiscal relations. The coordination failures considered here are due to agency problems arising from the delegation of fiscal powers to sub-national governments, and "common pool" problems associated with funding decentralised government spending through intergovernmental transfers. Particular attention is focused on the trade-off between coordination and fiscal decentralisation. Evidence provided for a sample of thirty countries suggests that coordination failures are likely to result in a deficit bias in decentralized policy making, particularly in the case of developing countries, for which the benefits of decentralization may be over-stressed. Developed countries were found to be less adversely affected by coordination failures and have therefore managed to pursue fiscal consolidation in a decentralized setup.     

Trust in government increased during the Covid-19 pandemic in Australia and New Zealand

Using an online panel, we surveyed a representative sample of 500 each in Australia and New Zealand during July 2020, in the middle of the Covid-19 pandemic. We find trust in government has increased dramatically, with around 80% of respondents agreeing government was generally trustworthy. Around three quarters agreed management of the pandemic had increased their trust in government. Over 85% of respondents have confidence that public health scientists work in the public interest. Testing four hypotheses, we find that income and education predict trust in government and confidence in public health scientists, as does voting for the political party in government. Trust in government and confidence in public health scientists strongly predict Covid-19 phone application use, largely through convincing people the App is beneficial. Trust in government then is both an outcome and antecedent of government effectiveness. Building trust is important for governments implementing difficult policy responses during a crisis.     

Lesson-Drawing from New Zealand and Covid-19: The Need for Anticipatory Policy Making

The Covid-19 pandemic has seen most governments worldwide having to think on their feet rather than implementing detailed and well-rehearsed plans. This is notwithstanding the fact that a pandemic was bound to happen, sooner or later (and will happen again). The effectiveness of national responses has varied enormously. Globally, New Zealand has been perceived as setting the gold standard in ‘curve crushing’, and for a short period achieved Covid-free status. For this achievement, much credit is due to the New Zealand government, especially to Prime Minister, Jacinda Ardern. However, post-lockdown the New Zealand government has encountered a number of Covid policy implementation problems (many of which could have been anticipated). Nevertheless, Covid-19 might still turn out to have been a seismic shock to existing policy processes and policy frames (such as austerity). If so, there are grounds for hope that in the future, governments and voters might be less short-term in their outlook. Perhaps anticipatory, rather than reactive policy making, might become more fashionable?     

Public management reform and lessons from experience in New Zealand

This article is edited from a speech delivered to the University of Victoria, Wellington—IPMN Workshop on the theme lessons from experience in New Zealand. The author articulates a number of lessons that have been learned, and identifies some lessons that should have been learned. Scott writes from the perspective of having been directly and centrally involved in the development and implementation of what has been characterized as “the New Zealand model” of public management for more than twenty years, a record of service that continues to date. The views expressed also benefit from extensive consulting by the author for governments around the world. Among the lessons learned are (a) the need for clarity of roles, responsibilities and accountability in the implementation of management reform, (b) the importance of matching decision capacity to responsibility, (c) the significance of ministerial commitment and clarity on expectations, (d) the advantages gained from structural innovations within the New Zealand cabinet, (e) the need to analyze disasters carefully for what they teach, (f) approaches to embrace and foibles to avoid in implementing performance specification, (g) problems caused by confusion over ownership and improper assessment of organizational capability, (h) the fact that actually doing strategic management in the public sector is hugely complicated, (i) that it is time to put an end to the notion that there is an “extreme model” of public management in application in New Zealand, and (j) that public management, government and governance innovations in New Zealand are no longer novel compared to those advanced in other nations. With respect to lessons not learned satisfactorily, many are simply the dark shadow of positive lessons, i.e., having not understood or implemented the successes achieved in some parts of New Zealand government into others. The author concludes with an admonition to avoid jumping too quickly, in response to post-electoral rhetoric, to the conclusion that past reforms in have to be modified quickly and radically, and that the New Zealand Model has failed.     

Radical Moderation: Recapturing Power in Two‐Party Parliamentary Systems

We estimate the parameters of a reputational game of political competition using data from five two‐party parliamentary systems. We find that latent party preferences (and party reputations) persist with high probability across election periods, with one exception: parties with extreme preferences who find themselves out of power switch to moderation with higher probability than the equivalent estimated likelihood for parties in government (extreme or moderate) or for moderate parties in opposition. We find evidence for the presence of significant country‐specific differences. We subject the model to a battery of goodness‐of‐fit tests and contrast model predictions with survey and vote margin data not used for estimation. Finally, according to the estimated model parameters, Australia is less than half as likely to experience extreme policies and Australian governments can expect to win more consecutive elections in the long run as compared to their counterparts in Greece, Malta, New Zealand, and the United Kingdom.