Partisan and Ideological Sources of Fiscal Deficits in the United States

Abstract

Past research investigating the relationship between politics of fiscal institutions and fiscal deficits has primarily focused on how different configurations of partisan control over the executive and legislative branches produce distinct policy outcomes. Such models rely on the strength of majoritarian parties in Congress and party affiliation of president, as reflected in the theory of divided party government. In this study, a simple, fluid unidimensional spatial framework based on the degree of ideological fragmentation among the President, Senate, and House is set forth to arrive at a richer understanding of fiscal policy. It is hypothesized that U.S. fiscal deficits will rise as the degree of ideological fragmentation among these institutions increases because it is more difficult to reach compromise and reconcile conflicting preferences over fiscal policy. Using annual data from the post-war period from 1948-1995, strong consistent empirical support for this thesis exists across alternative empirical specifications that reflect different pivotal House and Senate members, institutional alignments, and measures of ideological fragmentation. These findings indicate that the degree of ideological policy divergence among political institutions, independent of divided partisan control of government, plays a notable role in explaining fiscal budget deficits in the United States during the post-war period. T he link between the fiscal policy process and budget deficits is a major topic of inqutiry in the study of political economy. Fiscal policy is not only an important topic because of its effect on the economy (hence, its impact on elections'), but its conduct is directly under the decision-making aegis of elected officials. Past research has demonstrated that fiscal policy outcomes are closely linked to party fragmentation among electoral institutions (Alesina 1995; Alesina and Drazen 1991; Alesina and Tabellini 1990; Alt and Lowry 1994; Lowrey 1985; McCubbins 1991; Poterba 1994; Roubini and Sachs 1989a, 1989b; Tabellini and Alesina 1990; but see Franzese 1999; Hahm, Kamlet, and Mowery 1995, 1996, 1997). Although these works make great strides in our understanding of fiscal institutions and policy making, they implicitly assume that (1) political parties within democratic institutions are strongly unified; and (2) considerable partisan differences exist between elected officials that do not vary across time. Thus, divided party government approaches to understanding fiscal policy making view discrete and static partisan differences among politicians. An alternative, yet complementary perspective on decision making by fiscal institutions is proposed that is based on a more fluid and dynamic concept of ideological fragmentation. A focus on ideological fragmentation associated with institutional politics is worthwhile due to the heterogeneous nature of both intra-party and inter-party divisions (Coleman 1996; Frymer 1994), as well as distinguishing between partisanship and ideological behavior (Hinich and Munger 1994). In the area of fiscal politics, this