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.     

Cabinet structure and fiscal policy outcomes

A central explanation of fiscal performance focuses on the structure of the cabinet. However, the partisan context of cabinet decisions remains under‐explored, the findings are based on small samples and the variables of interest are often poorly operationalised. Using a new dataset of spending ministers and partisan fragmentation in the cabinets of 58 countries between 1975 and 1998, this study finds a strong positive association between the number of spending ministers and budget deficits and expenditures, as well as weaker evidence that these effects increase with partisan fragmentation.     

Legislative district configurations and fiscal policy in American States

In accordance with the median voter theorem the median legislator is decisive in representative democracy. If the preferences of the median legislator differ from the preferences of the median voter in the polity, fiscal policy choices will predictably diverge from those favored by the median voter. This paper seeks to identify the median district (and therein the preferences driving the median legislator) in American State legislatures. Using economic characteristics of constituents, we find substantial differences between the median district and the statewide median. As the income of the median district rises above the median income of the polity, government expenditures increase. In addition, the degree to which income is skewed across legislative districts affects spending for redistribution programs. Finally, we find that direct democracy procedures, which allow the statewide median voter to check legislative decisions, limit the impact of differences between the district and polity medians.     

The influence of federalism on fiscal policy making

Abstract. This article attempts to refine the statement that federal states face difficulties in fiscal policy making because of the territorial division of powers by comparing two federal countries, Canada and Germany. These two countries differ in terms of their type of federalism: Canada displaying a power-separation system and Germany corresponding to a power-sharing type. According to the authors, the territorial factor influences fiscal policy making through the distribution of taxing and spending powers as well as through patterns of intergovernmental relations. The use of fiscal policy instruments and the likely effects on conflict and cooperation in those two countries is discussed with empirical evidence. The authors come to the conclusion that federalism is indeed a constraint on fiscal policy making, but that the two types of power division face different obstacles and deal differently with fiscal problems. In the power-separation system of Canada, the federal government has encompassing competencies to use fiscal policy instruments unilaterally and without restraint, but faces a lack of concerted action with the provinces which reduces its scope of action in fiscal policy making. In the power-sharing system in Germany, concerted action facilitates macroeconomic stabilisation strategies but the compulsory negotiation system distorts the use of fiscal policy instruments by distributive bargaining.     

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.     

Fiscal institutions, fiscal policy and sovereign risk premia in EMU

We investigate the effect of fiscal institutions such as the strength of the finance minister in the budget process and deficits on interest rate spreads of Eurozone countries. Deficits significantly increase risk premia measured by relative swap spreads. The effect of deficits is significantly lower under EMU. This effect partly results from neglecting the role of fiscal institutions. After controlling for institutional changes, fiscal policy remains a significant determinant of risk premia in EMU. Better institutions are connected with lower risk premia. Furthermore deficits matter less for risk premia in countries with better institutions. Markets acknowledge that better institutions reduce fiscal difficulties rendering the monitoring of annual developments less important.     

Formula budgeting: The economics and analytics of fiscal policy under rules

The dramatic change in aggregate fiscal policy in recent years has contributed to a shift from process rules to allocation rules in federal budgeting. Although the allocation rules inherent in formula budgeting seem to offer fairness in times of fiscal constraint, they actually impose arbitrary program-level budgets that reflect the peculiarities of baselines, accounting conventions, and time horizons. Formula budgeting also changes the analytical environment, forcing policy analysts to pay greater attention to institutional arrangements.     

The growth effects of fiscal policy in Greece 1960–2000

This empirical paper uses annual data for Greece 1960–2000 to study the link between fiscal policy and economic growth. Our regression analysis implies that, although a smaller public sector can be good for growth, it is necessary to look beyond size; the composition and quality/efficiency of the public sector are equally important. The policy lesson is that a smaller government share in GDP, a reallocation of funds away from the wage bill to public investment, and an improvement in government quality/efficiency can become engines of long-term growth.     

长三角区域地方政府财政政策及其绩效评价

财政政策作为地方政府可以掌控的最直接、最有效的政策手段,其政策设计和实施效果对于实现地方社会经济发展目标有着不可替代的重要作用。就长三角地区地方政府公共财政政策的内容及其实施绩效进行初步的梳理和分析,从财政支出的角度对长三角地区部分公共财政政策的实施进行绩效评价。限于篇幅和容量,将只考察部分省级财政政策及其绩效评价,而对于长三角地区的省级政府以下的市、县、乡(镇)财政政策及其绩效没有考虑。     

Do political variables affect fiscal policy adjustment decisions? New empirical evidence

We test eight hypotheses on political factors influencing the likelihood that a fiscal policy adjustment occurs. We employ a panel discrete choice model for 20 OECD countries for the period 1970–2003. Two different definitions of fiscal adjustments are used to capture the differences between rapid and gradual adjustments. We find that these types of fiscal adjustment are primarily driven by economic factors and are hardly affected by political variables. The likelihood that a rapid adjustment takes place is only influenced by upcoming elections, while the likelihood that a gradual adjustment takes place increases in case of broad policy reform.     

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.     

Political stability and fiscal policy: time series evidence for the Swiss federal level since 1849

This paper explores the role of political stability on fiscal policy in a time-series analysis over 158 years at the Swiss federal level. We argue that the fiscal commons problem of public finances is affected by the number of years a finance minister remains in office, because the incentives for an incumbent to maintain a good reputation with sound policy decisions are stronger. A finance minister who succeeds to stay a long time in office enjoys a politically powerful position towards the administration, parliament and interest groups. In contrast, frequent government turnover weakens the position of the finance minister.     

Does agency competition improve the quality of policy analysis? Evidence from OMB and CBO fiscal projections

Public management scholars often claim that agency competition provides an effective institutional check on monopoly authority, and hence, leads to improvement of administrative performance in public sector agencies. This logic was central for creating the Congressional Budget Office (CBO) in 1975 to challenge the policy information provided by the Office of Management and Budget (OMB). We challenge this conventional wisdom by demonstrating that CBO has failed to enhance the quality of U.S. fiscal policy analysis on its own terms; nor has it spurred improvements in OMB's performance. Our empirical results indicate that the quality of OMB's fiscal projections has often deteriorated since the establishment of CBO as a rival bureau. We also show that both public and private information is being shared by these agencies to produce a similar caliber of task outputs. The broader implications of our study indicate that although politicians face incentives to employ agency competition in governmental settings, this type of bureaucratic strategy does not necessarily enhance the quality of administrative performance. © 2006 by the Association for Public Policy Analysis and Management     

Recognition of innovation and diffusion of welfare policy: Alleviating urban poverty in Chinese cities during fiscal recentralization

This article explores the complicated triangular architecture among innovation diffusion, fiscal recentralization, and authoritarian welfare regimes. We argue that local governments' adoption of innovative welfare policies attracts the attention of central authorities who tend to recognize spontaneous local innovation by releasing central administrative signals. During the era of fiscal recentralization starting from the Chinese Tax‐Sharing System Reform in 1994, cities with higher fiscal dependency are more likely to behave innovatively by adopting a new welfare policy for potential fiscal transfer rewards. The central government's recognition of this innovation stimulates cities' adoption but would reverse the effects of fiscal dependency because of the loss of the “innovativeness” of the adoption and its effectiveness in attracting the attention of superior authorities. We test our theories on the dynamic diffusion with the case of China's Urban Minimum Living Standard Assistance system, an urban poverty‐alleviation policy implemented fully in 1999.     

The administrative state and fiscal policy: A comparative analysis of political issues in China and the United States

This article examines the budgetary politics in China and the United States. It illustrates the inherent political nature of fiscal policies produced by different political and economic systems. Although both countries are concerned with the distributive effects of reform, the study indicates that the central government of China confronts issues related to the distribution of power between the center and the provinces during economic transformation. In contrast, the debate in the United States is produced by the distribution of costs and benefits brought about by federal fiscal policy. The context of the debate is influenced, in part, by the administrative state.     

The centralization vs decentralization tug of war and the emerging narrative of fiscal federalism for social policy in India

ABSTRACT

This paper examines the relationship between fiscal federalism and social policy in India through an analysis of the effects of a recent effort to increase fiscal decentralization to state governments on the nature of social policy investment at the sub-national level. Through its analysis, this paper highlights the persistence of a strong centralisation bias in India’s fiscal architecture for social policy. We trace this centralisation bias to the political and administrative dynamics of the federal bargain. The peculiar dynamics of this bargain have created a context where the core goal of centralization – to ensure equity – is undermined while the expectation of decentralization – greater accountability through alignment of expenditure with local needs and preferences, fails to take root. India is thus likely to continue to witness significant regional variation in social policy outcomes, despite a centralised financing architecture.