Political stability and fiscal policy: time series evidence for the Swiss federal level since 1849

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper explores the role of political stability on fiscal policy choices in a time-series analysis over 158 years on the Swiss federal level. We argue that the fiscal-commons problem of public finances is affected by the time-horizon of a finance minister. Arguably, the incentives for an incumbent to maintain a good reputation with sound policy decisions are stronger the longer the time-horizon of a respective term. In addition, a finance minister who succeeds to stay a long time in office normally enjoys a politically powerful position towards the parliament, the administration and the interest groups to influence policy decisions. In contrast, frequent government turnover weakens the position of the finance minister. Terms of use: Documents in EconStor mayJEL Code: H11, H50, H61, D78.Keywords: political stability, fiscal policy, constitutional changes. Birthday, April 18-19, 2008 at Schloss Wartensee (Switzerland) and of the Annual Meeting of the European Public Choice Society, April 2-5, 2009 in Athens (Greece).-2 - IntroductionIn 1918, Schumpeter (1918, [1953, p. 5) contended that people's nature, its cultural achieve- -4 -vernment levels in Switzerland and for Germany from 1961 to 1987. They include political variables in addition to characteristics of demand and supply for government activity and socio-demographic controls. However, they do not look at institutional factors such as proportional representation or direct democracy and the time period they study is too short to investigate short-run and long-run effects in a differentiated way. 3This paper contributes to the political economy of fiscal policy using time series data for the Swiss federal level. In contrast to previous analyses, the data set extends from the creation of the Swiss constitution in 1849 until 2007. It thus covers the full time period with many historical events that need to be captured in addition to economic and socio-demographic factors.Moreover, the long time series allows us to investigate potential short-run and long-run relations between the economic and fiscal variables. Our main research interest, however, consists in testing the hypothesis whether political stability induces sound fiscal policies in the longrun. Political stability is mainly captured by the time horizon of the finance minister, but is evaluated against the background of exogenous shocks like the two world wars or the Great Depression and constitutional changes like the switch to pr...

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Revenue Autonomy Preference in German State Parliaments

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Do Personal Characteristics of Finance Ministers Affect the Development of Public Debt?

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