Intra-cabinet politics and fiscal governance in times of austerity

Alexander Herzog,Slava Jankin Mikhaylov

doi:10.1017/psrm.2019.40

Alexander Herzog, Slava Jankin Mikhaylov

Open Access

https://doi.org/10.1017/psrm.2019.40

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Abstract

AbstractIn the context of recent economic and financial crisis in Europe, questions about the power of the core executive to control fiscal outcomes are more important than ever. Why are some governments more effective in controlling spending while others fall prey to excessive overspending by individual cabinet ministers? We approach this question by lifting the veil of collective cabinet responsibility and focusing on intra-cabinet decision-making around budgetary allocation. Using the contributions of individual cabinet members during budget debates in Ireland, we estimate their positions on a latent dimension that represents their relative levels of support or opposition to the cabinet leadership. We find some evidence that ministers who are close to the finance minister receive a larger budget share, but under worsening macro-economic conditions closeness to the prime minister is a better predictor for budget allocations. Our results highlight potential fragility of the fiscal authority delegation mechanism in adverse economic environment.

Highlights

Austerity measures introduced in the aftermath of the financial crisis have pushed fiscal policy to the forefront of the political agenda and public debate
We know that this mechanism is effective when appropriate budgetary rules are in place (Martin and Vanberg, 2013) and when finance ministers are supported by their prime ministers in the budgeting process (Hallerberg, Strauch and Von Hagen, 2009, 36)
This paper provides the first empirical evidence that intra-cabinet politics has an effect on policy outputs in parliamentary democracies

Summary

Introduction

Austerity measures introduced in the aftermath of the financial crisis have pushed fiscal policy to the forefront of the political agenda and public debate. As the post-crisis situation has shown, governments vary in their ability to implement the necessary cuts to public spending and control fiscal policy more generally. One of the proposed mechanisms to increase control over fiscal policy is to delegate the oversight of the budgeting process to a minister for finance (Hallerberg, 2004). We know that this mechanism is effective when appropriate budgetary rules are in place (Martin and Vanberg, 2013) and when finance ministers are supported by their prime ministers in the budgeting process (Hallerberg, Strauch and Von Hagen, 2009, 36). How does fiscal austerity affect the relationship between intracabinet budgetary politics and fiscal governance?

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