The political economy of deficit spending: a cross comparison of industrialized democracies, 1955 - 90

The postwar deficit experiences of nine industrialized democracies are analyzed. The relative importance of three of the primary influences on a country's deficit which have been suggested in the literature: (1) the state of the country's economy, (2) the 'left - right' ideology of the party in power, and (3) the strength of the party in power (as advanced by Roubini and Sachs) are examined. The author also introduces and tests the importance of an additional potential influence based on institutional structure in which presidential, 'stable' parliamentary, and 'unstable' parliamentary systems are seen to provide different incentives regarding the deficit for key political actors. The arguments are tested on a pooled time-series cross-sectional data set involving two presidential systems (France and the United States), four relatively stable parliamentary systems (Canada, Germany, Japan, and the United Kingdom), and three relatively unstable parliamentary systems (Denmark, Italy, and the Netherlands). The findings include: (a) strong effects of the state of a nation's economy on its deficit; (b) little systematic relationship between the ideology of the party in power and its deficit; and (c) the observation that increased control of the government leads to lower deficits in unstable parliamentary systems but larger deficits in presidential systems, with stable parliamentary systems serving as an intermediate case. The findings are compared both with the author's theoretical refinement and with recent theoretical and empirical work by Roubini and Sachs.