Budget institutions and taxation

While a number of different studies have explored the effects of budgetary procedures and the centralization of the budget process on government debt, deficits and spending, few of them have explored whether such fiscal institutions matter for public revenue. This article argues that centralizing the budget process raises the levels of taxation by limiting the ability of individual government officials to veto tax increases in line with common-pool-problem arguments regarding public finances. Using detailed data on budgetary procedures from 15 EU countries, the empirical analysis shows that greater centralization of the budget process increases taxation as a share of GDP and that both the type of budget centralization and level of government fractionalization matter for the size of this effect. The results suggest that further centralizing the budget process limits government debt and deficits by increasing public revenues as well as constraining public spending.     

Budget Process Reform: Waiting for Godot

The unraveling of the budget process described by Irene Rubin will have extraordinary consequences for the long-term budget outlook facing the nation. The retirement of the baby boom generation will prompt unprecedented and unsustainable structural fiscal imbalances for decades to come. Early policy action on the spending and revenue sides of the budget is critical to avert fiscal and economic crisis and to phase in changes in order to avoid precipitous and politically perilous actions in the future. Yet such actions constitute what amounts to a politically unnatural act, as one generation of political leaders is asked to make sacrifices in current policies benefiting future generations. Budget process reforms can serve to highlight the salience of these issues and help deal with the significant political hurdles faced by decision makers in making these intertemporal budgeting trade-offs. Ironically, the need for budget rules and processes has intensified as policy makers have become more vulnerable to polarized political parties, ever more watchful media, and mobilized interest groups. Budget rules and processes can help policy makers cope by protecting their ability to make the hard choices that will be necessary. The pressures for budget process reform will accelerate as the current financial crisis increases near-term budgetary pressures, promoting greater alignment between near-term and long-term fiscal problems.     

Do budgetary institutions mitigate the common pool problem? New empirical evidence for the EU

We analyze how budgetary institutions affect government budget deficits in member states of the European Union during 1984–2003 employing new indicators provided by Hallerberg et al. (2009). Using panel fixed effects models, we examine whether the impact of budgetary institutions on budget deficits is conditioned by political fragmentation (i.e., ideological differences among parties in government) and size fragmentation (i.e., the effective number of parties in government or the number of spending ministers). Our results suggest that strong budgetary institutions, no matter whether they are based on delegation to a strong minister of finance or on fiscal contracts, reduce the deficit bias in case of strong ideological fragmentation. In contrast, the impact of budgetary institutions is not conditioned by size fragmentation.     

Independent and competing agencies: An effective way to control government

Controlling government is a primary focus of the politico-economic literature. Recently, various political institutions have been analyzed from this perspective, most importantly balanced budget rules, fiscal federalism, and direct democracy. However, one type of institution has been neglected so far: elected competitors to the government. Such institutional competition between the government and an independent agency can be found at the Swiss local level, where finance Commissions compete with the government. In some parts of Switzerland, local finance commissions can ex ante criticize government projects and bring alternative policy proposals onto the political agenda, which are then voted on by the citizens. Thus, they become strong competitors to the government. We econometrically investigate this institutional setting by comparing the 26 Swiss cantons. We find the power of the local finance commission to have an economically relevant, statistically significant and robust negative effect on the tax burden and on public expenditures.     

省会城市预算过程中党政首长的作用与影响——基于三个省会城市的研究

以我国三个省会城市为例来试图回答这样一个问题:在省会城市预算过程中,党政首长究竟发挥着怎样的作用,他们是如何影响着预算过程和预算改革的?研究发现,这三个省会城市预算改革后,预算权力结构并未从根本上改变.其核心仍然是市委书记和市长,他们仍然是地方预算过程中实际的财政资源申请的审批者或最终资源配置者.这主要体现在,预算改革后,市委领导下的"行政预算"体制的继续,市政府领导高层预算分配权力的相对集中,和市长对部门关系以及部门利益的决定性影响.研究还指出,要准确地表达地方党政首长在预算过程中的权力,需要将其放在一种"关系"的维度来具体化.此外,对预算环境的讨论也是必要的,尤其是政治环境,对于党政首长而言,预算过程中的不确定性通常都是和政治环境相联系的.     

Political and institutional determinants of fiscal policy in the European Community

In recent theoretical and empirical research the variation in political and institutional arrangements which may affect the process of national policy formation is examined, in order to explain cross-country differences with respect to fiscal policies pursued. In this paper we build upon this literature and examine whether and how cross-country differences in debt accumulation and public sector size of Member Countries of the European Community during the 1980s can be explained. We conclude that the growth of government debt is positively related to the frequency of government changes and negatively to sound budgetary procedures. In countries with left-wing governments the growth of the share of government spending in total output generally tends to be higher.     

Politics of childcare policy beyond the left–right scale: Post‐industrialisation,transformation of party systems and welfare state restructuring

Childcare policy has become an integral part of social and economic policy in post‐industrial democracies. This article explores how the transformation of party systems structures the politics of childcare policy. It reveals that political parties contend with each other over childcare and female employment policy on the social‐value dimension as well as the redistributive dimension. Assuming that different party policies have distinct impacts on public childcare policy, it is hypothesised in this article that a government's policy position – composed of the governing parties' policy positions – affects changes in public spending for childcare services. Through an analysis of the pooled time‐series and cross‐section data of 18 advanced industrialised countries from 1980 until 2005 using multivariate regression methods, it is revealed that a government's redistributive left–right policy position interacts with its social liberal–conservative policy position, and that a left–liberal government raises its budget for childcare services while a left–conservative government does not.     

Budgetary Devices for Curbing Spending Prone Ministers and Bureaucrats

In this paper I study asimple game of the budgetary process. Thegame has three players. A spending proneminister, who proposes a budget, a primeminister, who accepts or vetoes, and abureaucrat who provides non-verifiableinformation about policy. The bureaucratis appointed by the spending minister. Ishow that in this setting public spendingis excessive. This result stems from theproposal power of the minister, and hisincentive to appoint a spending pronebureaucrat. Next, I examine two devices forcontrolling public spending: binding budgettargets imposed by the prime minister, anddelegating veto power to a spending aversefinance minister. It is shown that thelatter device is more effective than theformer device to curb a spending proneminister, because it not only reduces theproposal power of the spending minister,but also induces him to appoint lessspending prone bureaucrats.     

Tax Expenditure Budgets, Budget Policy, and Tax Policy: Confusion in the States

A tax expenditure budget should contribute to efficient and effective public decisions by quantifying the division in the tax structure between provisions that represent revenue policy (distribute the cost of government according to the legislated tax base) and parts that represent budget policy (substitute for direct spending). For this transparency to have the desired impact, however, the tax expenditure budget process and the direct expenditure process must be properly integrated and the tax expenditure budget must make an accurate division between the parts of the tax structure. A review of the 33 states with tax expenditure systems shows many weaknesses in application of the concept and poor linkage to the direct spending budget system. Their most significant flaw is in dividing the tax structure into normal and preference elements; states need greater attention to defining their basic tax structure if they are to have a meaningful tax expenditure budget.     

Games presidents do and do not play: Presidential circumvention of the executive branch budget process

The federal executive budgetary process has been severely criticized in recent years for its apparent inability to curb budgetary growth and limit deficits. Much of this criticism ignores the essentially political, rather than administrative, causes of these trends. Budgetary growth and deficit spending may be viewed in part as the results of presidential circumvention of budgetary and fiscal policy processes. Circumvention consists of the movement of spending decisions out of the annual review and evaluation of current-year budgetary formulation, thus evading the constraints frequently imposed by budgetary and fiscal policies. The precise mechanisms of presidential circumvention have changed over time. However, the long-term impact of circumvention has been a reduction in the controllability and comprehensiveness of the annual federal budget, as well as higher rates of budgetary growth.An earlier version of this paper was presented at the meetings of the American Political Science Association, September 1–4, 1983. We would like to thank George Downs, William Lammers, Harold Seidman, and James Sundquist for useful comments and discussion.     

After the Earthquake: The President's Budget for FY 1996

What changes has the political earthquake of November 1994 wreaked on the federal budget and, in particular, on the president's budget? Are the policy dynamics of federal budgets so entrenched that they transcend politics and are impervious to shocks? Or do the political changes presage radical policy changes, reversing decades of cumulative commitments? Are budgetary institutions and processes flexible enough to accommodate enhanced conflicts while maintaining their integrity and purpose? This article discusses the fate of the 1995 budget and the initial problems faced in the president's budget for 1996.     

Public Attitudes Toward Social Spending in the United States: The Differences Between Direct Spending and Tax Expenditures

This paper uses a survey experiment to examine differences in public attitudes toward ‘direct’ and ‘indirect’ government spending. Federal social welfare spending in the USA has two components: the federal government spends money to directly provide social benefits to citizens, and also indirectly subsidizes the private provision of social benefits through tax expenditures. Though benefits provided through tax expenditures are considered spending for budgetary purposes, they differ from direct spending in several ways: in the mechanisms through which benefits are delivered to citizens, in how they distribute wealth across the income spectrum, and in the visibility of their policy consequences to the mass public. We develop and test a model explaining how these differences will affect public attitudes toward spending conducted through direct and indirect means. We find that support for otherwise identical social programs is generally higher when such programs are portrayed as being delivered through tax expenditures than when they are portrayed as being delivered by direct spending. In addition, support for tax expenditure programs which redistribute wealth upward drops when citizens are provided information about the redistributive effects. Both of these results are conditioned by partisanship, with the opinions of Republicans more sensitive to the mechanism through which benefits are delivered, and the opinions of Democrats more sensitive to information about their redistributive effects.     

The Congress and fiscal policy

Although the common belief is that the Congress has paid little attention to fiscal policy, the same kinds of political-economic models which have been used to explain presidential budgetary policy may be used equally well to explain congressional budgetary behavior. The Congress' fiscal policy appears to be systematically sensitive to both economic and political factors. Changes in the unemployment rate have a major impact on congressional budgetary policy. As for political factors, the President's lead is followed most closely on revenue proposals and not at all on the expenditure side. The electoral cycle, in particular the off-year congressional election year, is also important; inducing larger deficits and smaller increases in revenues. When the influences on congressional fiscal behavior are compared with those on presidential behavior, the sources of the generally more expansionary congressional fiscal policy are identified. Congressional budget deficits increase in response to increased rates of unemployment but are insensitive to increases in inflation. In contrast, presidential budgets are heavily influenced by inflation and the growth in personal income — increases in each resulting in smaller proposed deficits — as well as by unemployment rates. In years in which both unemployment and inflation are increasing, the combination of the two (assuming a one percentage point change in each) implies an increase in the congressional deficit of $6.7 billion but a decrease in the president's proposed deficit of $2.5 billion. The implications of this study are a challenge to the literature which makes the President the central actor in macro-economic policy.     

Die Zentralisierung der Staatstätigkeit in einer Referendumsdemokratie: Evidenz aus der Schweiz

Previous theoretical and empirical research has shown that policymakers have incentives to centralize government activities in order to weaken the competitive pressure of fiscal federalism. We argue that referendums reduce the possibilities for collusion among representatives and the ability of higher level policy-makers to attract additional responsibilities. Empirical results from panel data for Swiss cantons between 1980 to 1998 support this hypothesis. The centralization of government activity, measured by budgetary outcomes, is significantly reduced by a fiscal referendum. This holds in the case of public revenue and its components, but also for public expenditure, in particular public education spending.     

Public good provision under dictatorship and democracy

The allocation of a government budget between a public good and transfers is modeled under different systems of government. The relatively even distribution of political power among groups in a democracy favors spending on nonexclusive public goods. The more concentrated pattern of political power in a dictatorship favors spending on transfers targeted to powerful groups. The hypothesis on public good provision is examined using cross-country data on public good provision and empirical indicators of political regime. Dictatorial governments are found to provide public schooling, roads, safe water, public sanitation, and pollution control at levels far below democracies.     

Political Budget Cycles: The Case of the Western German Länder

This paper focuses on the issue of the electoral andideological cycles in state government budget for the elevenWestern German Länder. We verify this hypothesis over theperiod 1974–1994 for the following budgetary variables: totalexpenditures, surplus/deficit, administration, health care,education, roads and social security benefits. While overallour results seem to show that generally the party variabledoes not play a systematic role in spending decisions, theyprovide some support to the opportunistic cycle theory showingthat the only relevant phenomenon is the effect of theupcoming election on the government spending inclinations.     

Effect of the Political System on Local Financial Condition: Empirical Evidence for Spain's Largest Municipalities

The significant relationship between public spending and political system has led to a considerable increase in the studies being carried out to analyze how the latter affects public spending, debt, and fiscal pressures. Given the effect that municipal finance has on the quantity and quality of the public services that future generations will enjoy, the aim of this study is to analyze the effect that political ideology and strength have on local government management overall through analysis of the financial condition. With this goal in mind, the study applied panel data methods that allow unobservable heterogeneity to be controlled to a sample of 153 of Spain's largest municipalities for the 1988–2008 period. The results show that the municipalities governed by progressive political parties are worse off financially than those governed by conservatives. Likewise, strong citizen support guarantees greater budgetary solvency.     

Government, interest groups and incrementalism

Abstract. This paper is concerned with the two underlying dimensions of the people's welfare – economic growth and social protection – and their realization in the diverse processes which determine the character of budgeting and of budgetary outcomes. These conflicting conceptions of welfare and the diverse agents involved in the budgetary process generate a government fiscal policy, which expresses the clash between ideology and political feasibility and between politicians' intentions and actual outcomes. This paper focuses primarily on the budgetary process in West Germany, but also makes some reference to fiscal policy in the UK and the USA.     

A Decade of Deficits and Debt: Japanese Fiscal Policy and the Rise and Fall of the Fiscal Structural Reform Act of 1997

Japanese budgetary and fiscal policy have experienced dramatic changes during the last several years, marked by the rise and fall of the Fiscal Structural Reform Act of 1997. This act altered the budgetary process with the goal of reducing Japan's rapidly growing deficit and debt. Yet the onset of recession in 1998 led Japan to engage again in large-scale deficit spending to stimulate the economy, and in the process discard its budget reforms.     

Does Direct Democracy Reduce Public Debt Evidence from Swiss Municipalities

Although some countries have managed toobtain balanced budgets or even budgetsurpluses in recent times, public debts ofmany OECD countries remain at high levels.Since structural reforms of public spendinghave only infrequently taken place in mostcountries, fiscal pressure will increaseagain in the future due to society's ageingand the accompanying increases in socialtransfer spending. Constitutionalrestrictions on debt levels and legal rulesof the budgetary process, such as a strongrole of the minister of finance, aresupposed to be helping against the debtbias inherent in political decision-makingprocedures. In addition to such top downbudgetary procedures, this paperinvestigates the impact of referendumapproval of budget deficits by the voterson the level of public debt in a crosssection of the 134 largest Swissmunicipalities in 1990.