Fragmented Fiscal Policy
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0047-2727
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Journal of Public Economics, 2002, 86, 2, 191-222
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PEROTTI, Roberto, KONTOPOULOS, Y., Fragmented Fiscal Policy, Journal of Public Economics, 2002, 86, 2, 191-222 - https://hdl.handle.net/1814/16588
Abstract
This paper explores on a panel of 19 OECD countries the role of fragmentation indetermining fiscal outcomes over the 1970-95 period. We first define the notion of fragmentation of fiscal policy-making as the degree to which the costs of a dollar of aggregate expenditure are internalized by individual decision-makers. Empirically, this notion has two key logical components: the number decision-makers and the rules of the game, or the budget process. In turn, the number of decision makers can refer to the number of parties in a coalition, or the number of ministers in the cabinet. We test all these determinants against each other, and against perhaps e oldest explanation of all, ideology. We show that cabinet size and, to a lesser degree, coalition size and ideology, are significant and robust determinants of fiscal outcomes. In particular, transfers are the budget items most affected by these factors.