Political Factors behind Cuts and Surges in Government Spending

Abstract

Surges and cuts are explained here by some of the political factors affecting governments’ abilities to balance the budget broadly discussed in the literature. The article focuses on territorial separatism, minority government, grand coalition, single-party government, and the ruling party’s ideology. Special attention is paid to the phenomenon of universal suffrage, which has caused the rise to power of modern left-wing parties and strong special-interest groups within the bureaucracy. Most political factors turn out to be time- and case-sensitive except for universal suffrage. A severe crisis can open the window of opportunity to cut public expenditure, while favorable economic conditions stimulate claims for redistribution and spikes in government spending. The most effective way to curb the instability of public finance is to strengthen proreformist political coalitions, claiming defense of national identity and moral values that encourage austerity and are market-friendly.

Keywords:

• weak government
• Separatism
• political competition
• budget deficit
• universal suffrage
• window of opportunity

Supplemental Material

Supplemental data for this article can be accessed on the publisher’s website at https://doi.org/10.1080/10611428.2018.1530511.

Notes

1. The structure of the spending (pure and mixed public goods production and provision) is crucially important as well. We address the latter issue in an earlier study (Yanovskiy, Zatcovecky, and Syunyaev, 2014).

^2. The 2012 U.S. vice-presidential debate is available at www.youtube.com/watch?v=j3roG09O6T4/.

^3. For a historical (preuniversal suffrage) perspective, see supplemental materials on the publisher’s website.

^4. Including those states (taxpayers’ democracies) that established universal censuses for voting franchises in the past, selected for statistical analysis.

^5. See the data set in the paper “Democracy of ‘Taxation-Redistribution’ and Peacetime Budget Deficit”; available at http://ssrn.com/abstract=2367861/.

^6. The Swedish SDP led the government in the years 1932–76, 1982–91, and 1994–2006 (sixty-five years in a seventy-four-year period).

^7. The full set of cases covering post–World War II history cannot be presented in article format. For few additional cases (Canada, Germany, United States), see supplemental materials (online only). For a full set and extended version of case descriptions, see the Project Report at SSRN: https://doi.org/10.2139/ssrn.2708533.

^8. See www.parties-and-elections.eu/belgium2b.html.

^9. World Bank statistics, World Development Indicators, 2015.

^10. Cargill, Sakamoto p. 222

¹¹ Nagy (2014) stressed that Koizumi used nationalism to weaken the LDP factions’ power and to advance reforms.

^12. Ibid., p. 225.

^13. As well as in today’s Greece.

^14. Gaidar coined the term “nationalist anesthesia” to describe the phenomenon during discussions in which the study’s authors were privileged to participate.

^15. Led by the Communist Party of the Russian Federation and by the Liberal-Democratic Party.

^16. “In the last four years, Britain has recovered her confidence and self-respect. We have regained the regard and admiration of other nations.” See www.margaretthatcher.org/document/110859/.