Balancing budgets. Political explanations of central government’s budget balance

Abstract

This thesis tries to identify which political and societal factors influence central governments' fiscal balance. It conducts the analysis using the statistical technique longitudinal multilevel models. 46 electoral democracies are covered between 1980 and 2006. The research method used makes it possible to reliably study whether permanent features influence the countries fiscal balance. Such features were likely to affect outcomes as permanent differences in deficit levels have existed between countries, and in the empirical analysis they are found to have a significant influence. In previous research time-varying political factors have been found to influence the budgetary balance of countries, and in recent years some scholars have claimed that permanent political institutions might also influence deficit levels. The paper follows in this tradition but finds that the quality of governance (strength of rule of law, levels of corruption and the strength of the bureaucracy) has a more decisive impact on deficit levels that the choice of institutions. The choice of political leadership, e.g. the number or ideology of parties in government, that have dominated much previous research into the political effect on fiscal behaviour are not found to significantly explain the phenomenon.