Political parties in Belgium are split along Flemish-Francophone lines, and Flanders enjoys relatively less federal expenditures and pays relatively more federal taxes than Francophone Belgium. As the federal debt is serviced out of federal tax revenues, Flanders bears most of the cost of debt servicing, while on average having benefited the least from the deficit-funded expenditures. Those uneven net benefits from Belgian federal budget deficits – and the diverging incentives for federal budget deficits this disparity seems to create – may be an explanation of the large overall size of deficits and debt in Belgium since the 1970s. Hence, interregional fiscal transfers resulting from the federal debt may be important not just because of their distributional consequences, but even more because they may provide an explanation for the large Belgian federal deficits and debt burdens. We test for these differing deficit incentives by investigating the difference between the effect of an increase in net formula-based transfers on Flemish resp. Francophone Belgian federal government parties’ vote share. We find at first sight that an increase in net transfers causes Flemish governing parties to lose votes during the next federal election, while the effect is insignificant in Francophone Belgium as well as in Belgium taken as a whole. The negative Flemish effect may be suggestive of Flemish voters being aware that increases in formula-based net transfers to Flanders may go hand in hand with similar increases to Francophone Belgium, that these increases may increase the public debt, and that the latter is serviced mainly with federal taxes raised in Flanders. However, when taking into account legislature-specific shocks that differ between Flanders and Francophone Belgium, the Flemish negative effect of transfers on votes mostly turns insignificant. Neither is there a consistently significantly positive effect of transfers on votes in Francophone Belgium, and also when investigated for Belgium as a whole the effect is insignificant. In conclusion, Francophone Belgian (Flemish) voters do not seem to particularly reward (punish) extra net transfers with more (less) votes. Francophone Belgian voters seem to overestimate the future cost of extra transfers they will bear, while the opposite seems to hold for Flemish voters. Alternatively, Francophone Belgian parties may overestimate the rewards – in terms of voters’ gratitude – of steering extra transfers to Francophone Belgium, while Flemish parties may correctly estimate the – lack of- punishment – in terms of voters’ anger of steering extra transfers to Flanders.
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