Parliamentary Dynamics, Government Stability and Fiscal Policy

Abstract

Why do countries with multi-party systems tend to deliver worse outcomes in terms of fiscal discipline than countries with two-party systems? The general opinion among macroeconomists is that coalitional systems produce policymakers who tend to act too little and too late due to political fragmentation and conflict among the coalition parties. The promptness of a firm single-party government is considered best by investors, particularly where a strong leader, like the United Kingdom's Prime Minister Margaret Thatcher, implements market-friendly policies. But Europe's current difficulties in recovering from the persistent economic slump should cause the profession to modify this view. Strong single-party majority governments are sometimes blamed and punished by voters for being excessively active and they may make it harder for a country to undertake unpopular reforms, as French voters experienced when they abruptly ended the tenure of Prime Minister Alain Juppe in 1997. By contrast, Italy, with a multi-party coalition government, is making strenuous efforts to reform its economy by adopting an approach based on large ‵social-political consensus'. Why is this? Part of the reason is that prime ministers in France or in the United Kingdom may embark on new policies such as business deregulation and fiscal adjustment programs — with a vigor unequalled by multi-party coalition governments and in a way rarely envisaged in their parties' election manifestos. Within a multi-party coalition government, the prime minister cannot simply sweep away the system of crony capitalism that serves organized interest groups so well, since these groups may exercise effective veto power on economic policy-making through the coalitional parties or organized lobbies.KeywordsFiscal PolicyGovernment StabilityAmerican Political Science ReviewElectoral RuleParliamentary SystemThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.