Coalition Governments Versus Minority Governments: Bargaining Power, Cohesion and Budgeting Outcomes

Recent empirical work investigating the role of minoritygovernments in the selection of fiscal policies has shown thatthe majority status does not affect the budget size. Thispaper presents an analytical framework which accounts for thisresult. It combines a government formation game and a budgetgame involving cabinet and parliament. A general indifferenceresult applies. An exogenous shock to the bargaininigenvironment which absorbes the cohesion of the governmentincreases the demand for expenditures. At the same time theconditions for the formation of a minority government arefulfilled. If the formateur is strong, a minority governmentcan be a device for cutting expenditures.