Budget Constraints and Political Behavior in Democracy

Abstract

The past policy analysis have already shown that the most part of budget imbalances are the result of the policy makers’ failure to design a tight structure of public spending according the dynamics of real revenues. Moreover the pro cyclical policies are not any more a feature of emerging markets but also of developed countries as well. This paper is aiming at showing that despite too many attempts to establish strong budget constraints through balanced or in surplus budget rule the politicians do not agree any restrictions which might negatively affect the outcomes of elections – the political dividends. The paper also intends to show that the financial stability requires a stronger motivation for politicians to abandon the wrong path to always accept budget deficits. This stimulus can only come from a major shift in voters attitudes. The arguments of solving the market failure or the need to encourage the public investments should be revalued through the efficiency of public spending.