Effects of Government Characteristics on Fiscal Deficits in 18 Oecd Countries,1961-1994

Abstract

Political economists studying industrialized countries have claimed that certain institutional characteristics of governments—such as majority status, the number of parties in government, and stability—affect levels of public deficits. They have specifically argued that weak/unstable governments produce higher deficits than strong/stable ones. The author tests the validity of such claims by examining empirical data from 18 Organization for Economic Cooperation and Development (OECD) countries between 1961 and 1994. It is shown that evidence does not support the “deficit-prone weak governments” thesis. If anything, there is some evidence to suggest that deficits are lower under what political economists call “weak/unstable governments,” such as minority governments, coalition governments, or less durable governments. It is further shown that there is extremely limited evidence to support another line of argument: that the strength/stability of governments does not necessarily create deficits but does affect the nature of adjustment paths to economic shocks and that weak/unstable governments are less capable of reducing deficits once they are created or the economy gets thrown off track.