Intra-governmental bargaining and political budget cycles in the European Union

Abstract:

Political fragmentation has been widely recognized by political economists as an important cause for fiscal profligacy in democratic market economies because of the common pool nature of fiscal resources. These predictions, however, sit uneasily with the notion of governmental veto players’ ability to block each other’s spending plans for electoral purposes. Applying the logic of a bargaining-game between veto players in a political budget cycle framework, I first model that multiple players in the budget game are in fact likely to moderate pre-electoral budget outcomes. Empirical results from a cross-section time-series analysis in EU member states provide corroborative evidence that fiscal electioneering is indeed more prevalent among cohesive, single-party settings. The findings are robust to alternative identification of elections, fiscal changes and sample selection.