Budget Deficits and Coalition Governments

This paper shows that compromise between different ideologicalmotivations within multiparty governments may result in a biastoward running budget deficits even if all parties in thecoalition prefer balanced budgets. The deficit bias increases withthe degree of ``polarization'' of the ideological motivations andgenerally decreases with the degree of concentration of powerwithin the government. Although the analysis is conducted assuminga proportional representation electoral system, the results willalso apply to majoritarian systems if the winning party comprisesideologically different constituencies. The relationship betweenbudget deficits and multiparty governments is investigated usingdata from a sample of eight European Union countries for the period1971–1990. Analysis on pooled data is partly in line with the theory.Time series within country analysis is less favorable: we findclear support to the theory only in the case of Italy.     

Budget Deficits in the States: Connecticut

Like many states, the State of Connecticut has recently faced substantial budget problems. This article is one of several that explore budget deficits in the states. We explore the reasons, extent, and current solutions to the budget deficits in Connecticut. Connecticut's fiscal circumstances include very poor accounting practices; dueling revenue estimates; large amounts of debt (both bonded and for post-employment benefits); a structurally strong legislature and governor; a governor and legislative majority of different political parties and fiscal philosophies; and a legislature with the ability to override gubernatorial vetoes. The combination of these ingredients has led to a highly partisan and contentious approach to budget discussions amid some of the largest budget deficits the state has ever experienced.     

Budget Deficits in the States: Massachusetts

Massachusetts entered the current recession carrying a structural deficit counterbalanced by a healthy, $2.1 billion stabilization fund, equal to 10 percent of total tax revenue. Like most states, Massachusetts only dimly realized the depth of the current recession in October 2008 when revenue collections began to slip and welfare caseloads began to increase. By May of 2009, a total FY2009 budget gap of $4 billion had been identified, the combined effect of plummeting revenues and increased costs for welfare and medical assistance. The Commonwealth closed the FY2009 budget gap through a combination of budget cuts, stabilization fund transfers, and federal stimulus funds. The Commonwealth faced an even larger $4.8 billion budget gap in FY2010. With the stabilization fund severely depleted, the FY2010 budget gap was closed primarily by budget cuts, federal stimulus money, and a sales and use tax increase. Because of the Commonwealth's reliance on one-time money to close current budget gaps, a significant budget gap of at least $2.8 billion for FY2011 was identified soon after passage of the budget. In this paper we discuss the political and historic context in which the budget gaps occurred, outline the causes of the budget gaps, and evaluate the strategies employed to close them.     

Budget Deficits in the States: Illinois

During FY 2009 and FY 2010, the State of Illinois was faced with significant fiscal challenges. The national recession was adversely impacting the state's economy, while the state had been struggling since the last recession with operating budget deficits and large unfunded pension liabilities. In the spring of 2009, the Governor's Office of Budget and Management estimated that in the absence of any intervention, there would be a $4.3 billion budget deficit in FY 2009 and a $7.3 billion budget shortfall in FY 2010. This paper discusses the magnitude and nature of Illinois' fiscal problems and the factors that have contributed to this situation. It also discusses Governor Quinn's proposed budget for FY 2010, as well as the legislative response. Although the state passed a capital budget and an operating budget, the outlook for the future remains uncertain. The operating budget significantly relies on one-time revenue and funding sources (including $3.4 billion in debt) and the state has approximately $100 billion in unfunded accrued liabilities for pensions and other postemployment benefits.     

Budget Deficits in the States: Virginia

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Budget Deficits in the States: New York

New York faces large projected budget shortfalls. Although the recession has contributed, a large part of the shortfalls are due to long standing structural imbalances. The structural imbalances result from high spending levels, particularly on Medicaid and education, a volatile revenue structure, and political forces that make it difficult to achieve recurring spending reductions. In the most recent budget session, federal stimulus money allowed legislators to avoid the tough decisions needed to move the state toward long-run fiscal balance, and the adoption of increased income tax rates for high earners is likely to increase revenue volatility moving forward.     

财政赤字风险:一个新的分析框架

财政赤字风险是由于各项制度的不确定性而导致财政赤字实际效应与预期效应不一致的可能性。财政赤字总量指标并不能完全、真实地反映财政赤字的效应,必须分析财政赤字的效益、结构。     

Does the Wage Tax System Cause Budget Deficits A Macro-Economic Experiment

In this paper we investigate experimentallythe economic functioning of a wage taxsystem for financing unemployment benefits in aninternational economy, in particular inreaction to budget deficits and taxadjustment. Our results support the hypothesisthat due to out-of-equilibrium priceuncertainty producers are reluctant toemploy inputs. We also observe a downward pressureon wages exacerbated by an over-supply of labor by consumers. Theseobservations can explain the budgetdeficits found. Furthermore, we find that taxadjustments in order to facilitate abalancing of the budget has strong adverse effects onunemployment and real GDP.     

The Structure of Budget Demands in Denmark, Norway And Sweden

Data on people's attitudes to items on the public budgets are found in the International Social Science Programme (ISSP) Role of Government surveys and Danish national election surveys 1990–1998. These data are factor analysed to validate a three-way agenda that postulates three main goals or functions of the state: the authoritarian state, the welfare state, and the humanitarian state. The factor solution is very similar in Denmark, Norway, Sweden, and the four largest European Union (EU) countries, and on many points consistent with theories of value change and new politics.
Based on the factor analysis, the support for each of the three agendas is analysed for voters of different parties in the three Scandinavian party systems. We find that all three systems are structured in at least two dimensions, the welfare dimension and the humanitarian vs. authoritarian dimension. These data therefore point to the existence of a 'new politics' dimension that is similar in the three party systems insofar as it contains the same five budget items. However, the opinion climate differs somewhat between the three countries. The support for the humanitarian agenda is lowest in Norway, whereas the support for the authoritarian agenda is highest in Denmark.     

Budget Deficits, Hyperinflation, and Stabilization in Ukraine, 1991–96

Since gaining independence in 1991, the former Soviet republic of Ukraine has been plagued by persistent fiscal deficits and punctuated periods of rampant inflation. Having few options to cover the fiscal deficit, Ukraine in 1992–94 largely resorted to money creation. The result was that hyperinflation broke out in late 1993, its burden falling mainly on households, but also eroding the capital of state enterprises. Falling revenues and robust expenditures—even in the face of the continuing output collapse—were exacerbated by a policy of lavishing large amounts of cheap credits on state enterprises. This article reviews and analyzes the causes of Ukraine's inflationary impulse, the descent into hyperinflation in 1993–94, its effects, and the subsequent drive to stabilization by 1996. It concludes that a substantial erosion of the inflation tax base by late 1995 propelled the government to pursue stabilization through an IMF-sponsored program of fiscal restraint. A two-year drive to fiscal and monetary stabilization ensued. Stabilization was largely achieved by mid-1996, permitting a currency reform in September.     

Deficits, Soft Budget Constraints and Bailouts: Budgeting after the Norwegian Hospital Reform

In the 1990s, the Norwegian hospital sector was characterized by soft budgetary constraints and increasing budget deficits. This was one of the main antecedents of the 2002 hospital reform, where the central state took over ownership of the hospitals from the counties. Arguably, the centralization of ownership, financing and production would harden the budget constraints and increase the budgetary discipline. This analysis shows that this has not been accomplished. Instead, the production has been far above what was planned, and the deficits higher than ever. Two stages of the post-reform budget processes are analyzed: first, the stage where the central state set the budgets and sends signals of budgetary rules (whether the state sends signals of soft or hard budget constraints), and second, how the central state handled deficits in the hospital sector as they emerged (whether the hospitals was bailed out or not). The conclusion is that the central state neither set a hard budget constraint nor managed to stay firm as deficits turned up. It is argued that three mechanisms explain the prevailing problems of managing the hospital sector: uncertainty of the hospitals' financial situation during the transition phase; minority governments; and specific features related to the organization of the budgetary process in parliament.     

Government Strength, Power Dispersion in Governments and Budget Deficits in OECD-Countries. A Voting Power Approach

We test for the influenceof government strength and dispersion ofpower among the parties of coalitiongovernments on the size of annual debtaccumulation through budget deficits inOECD-countries from 1970 to 1999.Government strength and power dispersion incoalition governments are measured by theBanzhaf index of voting power, respectivelythe standard deviation of Banzhaf indicesof coalition parties. We believe that theseare better-suited proxies than most of whathas been applied so far. Governmentstrength turns out to be insignificant.However, coalitions with equally strongpartners run significantly higher deficitsthan coalitions with one dominating party.     

Coping with transnationalism in Northern Europe

This report communicates findings on the management techniques devised to cope with the effects of transnationalism in Northern Europe. The most important aspect of this collective policy coordination effort is extensive and intensive interactions among governmental elites across national boundaries. Recently, an effort has been made to increase central, cabinet control of these trans‐Nordic activities. The national bureaucracies remain the most crucial actors while the regional officials have an influence on outcomes to the extent that they can mobilise political commitments or transgovernmental coalitions.     

Coping with lengthy ballots

Given voters' limited cognitive abilities, the learning environments voters face may have implications for how voters learn and make decisions. One prominent feature of American elections is the variation in the length of the ballot across jurisdictions and elections. This paper explores the consequences of lengthy ballots on the ability of voters to learn about candidates. Using an experimental design and a dynamic information board (Lau and Redlawsk, 2006), subjects participate in a mock election where they are asked to gather information about a single election or multiple elections. The results indicate that while voters compare more information as ballot length increases, they spend significantly less time learning about individual pieces of candidate information.     

Dealing with Uncertain Budget Forecasts

The article reviews the history of past budget projections by the Congressional Budget Office (CBO). The projections have been extremely inaccurate because of errors in the choice of economic and technical assumptions. The errors grow rapidly as the projection's period is lengthened. The projections are unlikely to get better soon. Therefore, the question becomes how CBO, the Congress, and the media should react to the extraordinary uncertainty that must be attached to the budget outlook. Among other things, the author suggests de-emphasizing projections made for periods longer than five years, because such projections are only a little better than random noise. He also points out the futility of aiming for rigorously enforced numerical targets for the budget balance, as was done in Gramm-Rudman and as has been proposed in various types of "lock box" legislation. The targets move around too rapidly to ever be hit.