Political characteristics, institutional procedures and fiscal performance: Panel data analyses of Norwegian local governments, 1991–1998

Abstract.  Budgeting can be understood as a common resource pool problem where spending agencies have incentives to encourage excessive levels of current spending and reduce budget surplus or create budget deficits. The political leadership is assumed to have an important role in keeping fiscal control and resisting the high-demanders' pressure for increased spending. Three factors of relevance for their success are investigated: political characteristics (political colour and political strength, the strength of relevant interest groups) and two institutional characteristics – committee structure and budgeting procedures. The analyses are based on panel data from up to 434 Norwegian municipalities in the period from 1991 to 1998. The results support the hypothesis that strong political leadership improves fiscal performance. The effect of interest groups is to a high degree community-specific. However, an increased share of elderly reduces fiscal surplus. Differences in budgetary procedures do not seem to affect fiscal performance. A strong committee structure seems, on the other hand, to result in better fiscal performance than a weaker one.