Do fiscal rules reduce political polarization?

Abstract

In recent years, several countries have enacted numerical fiscal rules, which set limits for government expenditure, revenue, deficits and debt. According to both proponents and critics of these rules, they are a tool to depoliticize fiscal policy and perhaps the political system more broadly, by forcing political parties to adopt increasingly similar political positions. However, little empirical research has been done on whether the introduction of fiscal rules actually affects countries’ internal political life. This article explores whether fiscal rules do, in fact, cause legislative parties to adopt similar political positions, by testing the effects of fiscal rules on the level of political polarization. Using party manifestos data from 185 elections in 32 OECD countries, this article finds little robust evidence that fiscal rules independently reduce the level of political polarization within national legislatures. Contrary to popular arguments about fiscal rules and depoliticization, there is little evidence for an independent effect of fiscal rules on the variance of political parties’ positions.