Cabinet Durability and Fiscal Discipline

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Authors David Fortunato, Matt W. Loftis
Paper Category
Paper Abstract Government durability is critically important, yet the supply of research devoted to its causes far exceeds the supply of research devoted to its consequences. We argue that short government durations in parliamentary democracies increase public spending by driving a political budget cycle. We present a revision of the standard political budget cycle model that relaxes the common (often implicit) assumption that election timing is fixed and known in advance. Instead, we allow cabinets to form expectations about their durability and use these expectations to inform their spending choices. The model predicts that 1) cabinets should spend more as their expected term in office draws to a close and 2) cabinets that outlive their expected duration should run higher deficits. Using data from 15 European democracies over several decades, we show that governments increase spending as their expected duration withers and run higher deficits as they surpass their forecasted life expectancy. ∗In addition to the editorial team and four anonymous reviewers, we are grateful to Despina Alexiadou, Timm Betz, Martin Bisgaard, Bill Clark, Carsten Jensen, André Kaiser, Peter B. Mortensen, Oli Proksch, Guy Whitten, Georg Vanberg, and Jason Eichorst, as well as participants of the 2016 Annual Meetings of the Public Choice Society and Southern Political Science Association for helpful comments and feedback.
Date of publication 2018
Code Programming Language R

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