Minority governments and budget deficits: The role of the opposition

Abstract

When governments are in a parliamentary minority they have to negotiate with opposition parties over the annual budget. We argue that, as a consequence, the preferences of the opposition concerning fiscal outcomes should be reflected in the yearly budget balances. We present a theoretical argument in which the opposition faces a trade-off. It has a short-term interest in deficits since they can signal a weak government, but a long-term aversion to them because, if they reach office, they will have to deal with the burden of increased debt. Empirically, we find that opposition parties affect deficit outcomes depending on their probability of governing in the next term and the weakness of the incumbent government. When the opposition is mainly concentrated in one party, it is likely that it will take over the government and this will make the opposition deficit-averse in the current period. However, if the minority government is a coalition, then a concentrated opposition might see deficits as an opportunity to reach office earlier and might be willing to pass budgets with deficit

Coalition governments, cabinet size, and the common pool problem: Evidence from the German states

“…It might be argued that the sole SPD government in Saxony-Anhalt was in reality a coalition with the PDS in all but name. Moreover, there is theoretical work which suggests that in situations with minority governments, the opposition might play a decisive role for fiscal outcomes (Falco-Gimeno and Jurado, 2011). However, (unreported) regression results with a redefined coalition variable that codes Saxony-Anhalt as having a coalition government during the 1998-2002 period are very similar to those reported in the paper.…”

Fiscal performance of minority governments: New empirical evidence for OECD countries

“…The empirical evidence is mixed (Table 1). Some early studies confirm the expected effects of minority governments, while more recent studies do not (Roubini and Sachs 1989aand 1989b, Edin and Ohlson 1991, De Haan and Sturm 1994and 1997, Borelli and Royed 1995, Hahm et al 1996, De Haan et al 1999, Sakamoto 2001, Perotti and Kontopoulos 2002, Falcó-Gimeno and Jurado 2011 I use new central and general government data for 23 OECD countries over the period 1960-2015 (unbalanced panel) to examine the effect of minority governments on budget deficits and public expenditure. As compared to previous studies on fiscal performance of minority governments in OECD countries, my sample includes data later than the year 2000.…”

Weapon of the Weak: One-Minute Speeches in the Israeli Parliament

“…Falco-Gimeno and Jurado (2011) showed that when the opposition's support is required to pass the budget, it will push for deficits if it has sufficient strength and is contesting a fragile government. Akirav, Cox and McCubbins (2010) found that in the Knesset the opposition parties' roll rates on exceptional bills such as the budget are higher than their roll rates on ordinary bills.…”

“…First, splits in the opposition may be one of the explanations for it weakness. When the opposition is concentrated in a single party, in the short-term it may be rewarded by the electorate, but in the long run, it will need to deal with the debt it incurs for this reward (Falco-Gimeno & Jurado, 2011;Tuttnauer, 2013). Tuttnauer (2013) found that parliamentary democracies contain two types of oppositions.…”

“…Furthermore, even if the opposition consists of a single party, there may be ideological and political variances that weaken and divide the opposition (e.g., Falco-Gimeno & Jurado, 2011;Flemming & Damggard, 2008). Third, the opposition may suffer from its role in the legislative process, both on the floor and within committee debates.…”