Fiscal expansion and political instability in the Iberic-Latin region

Abstract

Recent research by public choice-oriented economists and political scientists points to a negative relation between fiscal expansion and voter support for the incumbents. Real per capita federal spending is negatively associated with the vote for the incumbent party's candidate in American presidential elections (Niskanen, 1979). There is a negative relation between increases in the percent of Gross National Product spent by the central government and incumbent party reelection to the White House and the British parliament (Cuzain and Heggen, 1984, 1985). Furthermore, the incumbent party's vote in American gubernatorial elections varies inversely with increases in the ratio of state general revenues to state personal income between elections (Peltzman, 1987). Fiscal expansion is also associated with the overthrow of Latin American governments (Cuzin, 1986). Fiscally expansionist Latin American regimes whether civilian governments or military juntas tend to be overthrown, while democracies and dictatorships practicing fiscal restraint usually survive. Together, these findings suggest that fiscal expansion costs the incumbent party a loss of political support, resulting in its being voted out or forced out of office. Since the stability of any government depends partly on support for the incumbents, it is hypothesized that, ceteris paribus, fiscal expansion is a cause of political instability. According to this hypothesis, fiscal expansion has a boomerang effect on the incumbents, increasing the likelihood that the party will lose executive office either by election or coup. The purpose of this paper is twofold. One is to bring additional empirical