Partisan Preferences and Political Institutions: Explaining Fiscal Retrenchment in the European Union

2021

Rev. Adm. Pública

Compared to many other countries in Europe, Estonia managed to curtail the spread of the new coronavirus rather effectively. This paper offers an overview of the measures undertaken to tackle the COVID-19 pandemic in March-May 2020 and explain why Estonia managed to successfully contain the epidemic. The paper argues that the management of the crisis was facilitated by political factors, quick policy learning, cooperation with the scientific community, and the existing ICT and e-government infrastructure.

Section: Political Will To Adopt Swift Measures and Centralization Ofmentioning

confidence: 99%

Estonian response to COVID-19 pandemic: learning, cooperation, and the advantages of being a small country

2021

Rev. Adm. Pública

“…On the basis of the existing literature, for example, one would conjecture that the ideology of the governing party (or parties) and the existing political institutions play a relevant role in fiscal policy choices. One would expect, for example, left-leaning governments to have undertaken counter-cyclical fiscal measures and engaged in fiscal expansion and right-leaning governments to embark on a-cyclical or even pro-cyclical fiscal policy (Cusack 1999; Carlsen 1997; Pamp 2008). As Cusack (1999) and Carlsen (1997) argue, leftist parties would be reluctant to tighten fiscal policy during a recession since high unemployment (induced by the economic slump) hurts their main constituencies (who are economically more vulnerable); hence, they would argue for stimulating the demand and incurring deficits.…”

Section: Analytical Frameworkmentioning

confidence: 99%

Why Did Estonia Choose Fiscal Retrenchment after the 2008 Crisis?

Kattel

2011

J. Pub. Pol.

The budgetary response of Estonia to the 2008 global financial crisis poses a puzzle. While many other countries increased public expenditure and ran high deficits in 2009, the Estonian government was different: it undertook fiscal retrenchment, combining expenditure cuts and tax increases, despite a large drop in economic output. This article explains why the Estonian government opted for fiscal consolidation during the crisis. The ideological position of the governing parties and their desire the join the euro-zone played an important role in driving fiscal discipline. It also argues that the key to understanding Estonia's fiscal decisions in 2009 is what happened in the 1990s: fiscal policy choices became path-dependent as a result of positive feedback loops from previous periods of fiscal consolidation. Path-dependency was further reinforced by institutional capabilities (or lack thereof) created by initial macroeconomic policy choices.

“…As Tsebelis (1995, 2002) contends, a larger number of veto players tends to lock in economic policy and reduce its ability to respond to outside shocks. Pamp (2008) also hypothesizes that the larger the number of veto players in a polity, the less likely it would be to engage in fiscal retrenchment.…”

Section: The Role Of Institutional Factors In Fiscal Adjustmentmentioning

confidence: 99%

“…There is a large (and growing) literature on political economy of fiscal adjustment , which considers political and institutional factors (like ideology, elections, government type, fiscal rules, and budget procedures) that influence the likelihood, promptness and content of fiscal consolidation in a polity (for recent examples, see Alesina et al . 2006; Pamp 2008; Price 2010; Lavigne 2011). The main goal of this article is to examine whether the main institutional factors that have been pointed out by the existing literature on political economy of fiscal adjustment played a relevant role in the Estonian case.…”

Section: Introductionmentioning

confidence: 99%

Fiscal Retrenchment in Estonia During the Financial Crisis: The Role of Institutional Factors

2011

Public Administration

Unlike most other countries in Europe, which engaged in expansionary fiscal policies in 2009, the government of Estonia followed the opposite path by adopting several austerity packages, combining expenditure cuts and tax increases. This paper explores whether (and to what extent) the theoretical propositions from the literature on political economy of fiscal adjustment that focus on institutional factors are able to explain how it was possible to undertake such extensive fiscal adjustment in Estonia. The case study shows, first, that a coalition government and a minority government are able to achieve fiscal adjustments, especially if there is political commitment to lower the deficit. Second, the study indicates that an externally imposed fiscal rule can act as a major focal point in guiding deficit‐reduction efforts. Third, the Estonian case demonstrates that centralised budgetary institutions are conducive to fiscal adjustment and mitigate the problems arising from size fragmentation.