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date: 25 March 2017

Fiscal Politics

Summary and Keywords

The topic of fiscal politics includes taxation and spending, budget balances and debt levels, and crises and the politics of austerity. The discussion often focuses on how some variable—such as the international environment, or political institutions—constrains “politics” in this realm. Almost omnipresent concerns about endogeneity run through this research. While this is a “big” policy area that deserves study, tracing causation is difficult.

Keywords: fiscal policy, budget deficits, debts, crises, political institutions, partisanship, globalization, fiscal rules, fiscal institutions


Fiscal politics concerns money. For governments, it concerns how it is raised and where it goes. Citizens, for their part, worry about what they pay in taxes and what they get in benefits. Markets wonder about how much governments need to borrow and whether they will be paid back. All consider the effects of fiscal policy on the overall health of the economy. Because of the centrality of money, fiscal matters relate to broader themes. As Joseph Schumpeter wrote almost a century ago, “the public finances are one of the best starting points for an investigation of society, especially though not exclusively of its political life.”1

This article considers research on fiscal politics. It is organized according to the type of policy issue, which is usually the dependent variable in an analysis. Each section provides a definition and discusses the types of actors and the types of theoretical problems. These, in turn, structure the explanations of a given type of fiscal politics. Something that will become clear to the reader is that the discussion often focuses on how some variable—such as the international environment, or political institutions—constrains “politics” in this realm. Topics that remain open for further research are discussed. Almost omnipresent concerns about endogeneity run through the article. While this is a “big” policy area that deserves study, tracing causation is difficult.

Two Sides of the Ledger: Taxation and Spending

The classic work on fiscal politics looks at the allocation of taxation and spending. This means that politics in this case are explicitly redistributive—someone pays, and someone receives. The most common models try to understand why some groups receive money or bear the burden while others do not.

Partisan arguments assume that policy-makers spend money on their constituencies and tax their opponents. Some simplify to labor versus capital, with left parties supporting the former and right parties the latter (e.g., Hibbs, 1977). The appeal of this intuitive argument is clear, but, as many observers have noted, outcomes rarely fall into the two neat categories based upon which bloc is in power. Left governments, such as Social Democrat Gerhard Schröder’s red-green coalition in Germany, cut taxes on capital and seem to be as friendly to “capital” as some right governments.

To explain why the simple model does not work, one set of arguments considers why the policies of one of the two blocs, namely labor, are likely to be constrained. Lindblom (1977), following on a longer tradition, emphasizes the structural power of capital. Governments essentially have to do what capital tells them to do. Mosley (2000, p. 759; see also 2003) argues that the constraints of markets on the government’s “room to move” are fairly limiting but also fairly narrow—markets pay attention to a few key indicators, such as inflation, but in general provide bigger constraints on monetary policy than on fiscal policy.

The flip side of this argument concerns the politics of “embedded liberalism” (Ruggie, 1982; see also Cameron, 1978; Rodrik, 1998). Rather than force policies that only capital could appreciate, greater “globalization” and the movement of capital, goods, and some labor that accompanies it may make “left” fiscal policies more likely. Governments are compelled under such circumstances to provide spending, and particularly fiscal transfers, to compensate constituencies most vulnerable to the world economy.2 This leads to more state spending.

Still others emphasize the role of domestic political institutions in reflecting the effects of international markets. Hays (2009) suggests that majoritarian democracy, when combined with decentralized labor markets, tends to undermine the embedded liberalism bargain for more open economies. Beramendi, Häusermann, Kitschelt, and Kriesi (2015) stress the multidimensionality of the policy space, which makes simple left-right dichotomies unrealistic, as well constraints on the supply side, such as previous policy decisions and state capacity, which lead to a model of constrained partisanship. Beramendi (2015) focuses on labor markets as a key institutional constraint. While not directly on fiscal policy, Sattler (2013) finds that markets react negatively to the election of left governments when there are few institutional constraints to what those governments can do in office.

The contrasting argument to these models of partisanship, and constrained partisanship, in explaining fiscal outcomes, as Clark (2003) summarizes well, is Downs’s (1957) median voter model. Clark (2003) argues that the convergence in policies one observes is due to electoral competition, which pre-dates the opening of capital markets. Rather, the “constraints” the international arena puts on governments concern the tools they can use to influence elections. As Nordhaus (1975) observed, governments rely on fiscal policy to boost the economy prior to an election. These opportunistic political business cycles explain short-run changes of fiscal policy around elections both before, when there is a fiscal expansion, and perhaps afterward as well, when there is a fiscal contraction to pay back what was spent before.

These works focus on advanced industrial democracies, but questions about the relevance of partisanship and globalization as explanations for fiscal policy extend to emerging markets. Stokes (1999), in a general review of economic policies, argues that there is a convergence toward the “Washington Consensus” regardless of the electoral campaign of the elected president, with fiscal policies under this rubric including more economically neutral tax systems. This work sets up Kaplan’s book on austerity politics in Latin America (2013). Also observing that many governments seem to impose “neo-liberal” fiscal policies, he argues that it is the type of borrowing a country engages in, combined with how elites perceive the lessons of a previous crisis in a given country, that affects whether governments impose austerity policies. As Lupu (2014) contends, the convergence of policies on these policies undermined the “brand” of political parties.

Moving beyond work that tries to explain the overall direction of fiscal policy, there are excellent studies that break up spending or taxation into its components. Ansell (2014) argues that voters with homes that appreciate in value are less supportive of social programs because they see their property as a type of insurance policy. Parties of the right in power are especially responsive to these voters, and they will cut social programs.

There may be different dynamics in play in developing economies for social policies. Wibbels and Alquist (2011) consider the development of social insurance spending in developing countries. They find that the development strategy a government adopted after World War II when they had closed economies affects what priority they put on spending public money on such policies. This means that even in closed economies one will find social insurance, which is counter to the expectations of Ruggie (1982) and others for the developed world. Nooruddin and Rudra (2014) find that rather than provide greater social insurance in the face of increasing factor mobility, these sets of countries expand their public workforces. This helps maintain support for freer trade, but it also does not necessarily help the group most hurt.3Haggard and Kaufman (2008) focus on the effects of historical legacies on the shape of social spending in support of the welfare state. A history of financial crises and pre-existing exclusionary welfare systems meant, for example, that Latin America followed mostly liberal social reforms, while a history of expansive welfare states in Eastern Europe limited the amount of scale-back in those countries.

Returning again to institutional effects, there are several papers that consider the effects of proportional representation (PR) and majoritarian electoral systems on specific spending policies. Persson and Tabellini (2003) assume that parties under PR target broad transfers while parties under majoritarian rules offer more targeted, or narrow, transfers. Rickard (2009), however, finds that politicians elected via PR rules are more responsive to increases in demand for narrow transfers, so changes in support for these types of benefits should be more frequent under PR rules.4

Finally, while perhaps more the realm of economists, there is also work on the costs to the economy of different fiscal policy choices. Perhaps because of identification issues—economic growth is a notoriously difficult variable to explain, and to isolate the effects of different types of fiscal policies is even more problematic—the agenda concerning the “quality of public finances” appears more in international policy-making circles (e.g., Afonso, Ebert, Schuknecht, & Thoene, 2005). But the political economy of such choices should consider the effects of those choices on the overall economy, not just in a specific spending area.

On the tax side, there are also extensions of the median voter model. The best-known model comes from Meltzer and Richard (1981), who contrast the position of the mean income and the median voter. If the median voter is lower than the mean, she will vote for a more progressive tax that redistributes income. The implication is that if they are reversed, the median voter will support a regressive tax system. They key then is the level of inequality within the selectorate, which also depends upon the members of the selectorate itself. Relatively equal societies that have universal suffrage will have mostly flat taxes. Unequal societies where the poor are discouraged from voting may have the same outcome. Extending the suffrage (or increasing the selectorate), however, is expected to lead to more progressive taxes.5

Timmons (2010) argues that increasing the size of the selectorate affects taxation, but in a way fundamentally different from what the original Meltzer and Richard model would predict. Rather than increase the progressivity of the tax system, introducing more voters increases the use of regressive tax instruments, and in particular of consumption taxes like the value-added tax. While his paper focuses only on the revenue side, he cites Kato (2003) to note that this increased revenue enables a more developed welfare state. Similarly, Beramendi and Rueda (2007) find that social democratic governments find themselves in a paradox, where they need to rely on regressive indirect taxation to support the welfare state but can minimize that support only in non-corporatist settings.

A methodological concern that arises in this type of work concerns identifying the real causal mechanism—do voters push politicians to the median voter’s position, or are there really partisan effects where the party elected affects the policy? For tax policy, did a left party increase an income tax because it is left-wing, or because it was targeting the median voter in a given district who wanted the tax burden to fall on income? A recent literature uses regression discontinuity models to try to address this problem. Regression discontinuity models isolate close elections, calculate the average change in voting power for a given party, and then use this as an instrument for actual voting power (see Lee, Moretti, & Butler, 2004 for the original application of the technique to the U.S. House of Representatives). Pettersson-Lidbom (2008) examines Swedish local governments and finds support for the traditional arguments about parties—left-wing parties both increase taxes and increase spending, and as a result also employ more workers than right parties in government do. The results, however, are not always so clean—Freier and Odendahl (2015) apply the technique to local governments in Bavaria and find that, contrary to expectations, the Social Democrats lowered taxes systematically while in power.

Another concern in the taxation literature concerns competition among countries to attract a mobile factor, which is usually capital but can in theory also be labor. The economics literature on tax competition is extensive (see the excellent review in Keen & Konrad, 2013), and there is of course overlap with the political economy literature, but the concerns are often about efficiency of the tax system and what sorts of incentives different types of models with different assumptions create. In the political economy literature on tax competition, Basinger and Hallerberg (2004) present a tournament model that indicates that the decision of a country to initiate a tax reform depends on the number of veto players in other countries with whom one competes. A reduction in the number of players in one country, for example, could lead to reform in the domestic country even if that country has several veto players. This result also explains why there are periods of relatively active tax reform and other periods when there is virtually no reform even if marginal tax rates are fairly different across cases and capital is mobile. Similarly, Hays (2003) contends that majoritarian democracies are more likely to respond to competitive pressures than are consensual democracies. Also looking at the possibility of international tax competition, Steinmo and Swank (2002) find that capital mobility leads to cuts in the corporate income tax but not necessarily to reductions in the effective tax rate capital pays overall. Swank (2016) sees tax competition among developed countries as one where the United States goes first, so that it plays the role of a “Stackelberg leader.” Countries generally follow the American lead, although institutions of coordinated market economies, left-leaning median voters, institutional veto points, and high debt burdens all slow down the adjustment. Jensen and Lindstädt (2012) argue that governments learn from each other especially when a left government cuts corporate tax rates, making tax cuts in other competing countries more likely.

Finally, there is a literature that considers the development of tax systems depending upon the development of the economy, which some refer to as “fiscal sociology,” and which is (despite the name) interdisciplinary in nature (Martin, Mehrotra, & Prasad, 2009). A common finding is that tax capacity increased as a result of preparations for fighting wars (e.g., Scheve & Stasavage, 2010). The role of the spread of democracy is also part of the discussion, although recent work emphasizes that it was often an autocracy that initially imposed the income tax in 19th- and early-20th-century Europe (Mares & Queralt, 2015). For a classic text on these issues, see Musgrave (1969).

Budget Balances and Debt Levels

So far, the focus has been on distributive politics in expenditure and revenue policy. This section considers the aggregates of both in a given year, with the difference between revenues and expenditures a budget balance, as well as the politics that concern the build-up of liabilities from public budget deficits, which constitute the public debt.

There is a separate literature that identifies another type of “problem,” namely the common pool resource problem. The concern comes from politicians who worry about the expenditures their constituencies bear as well as the taxes that they pay. The issue arises when the constituency does not equal all taxpayers, in which case the policy-maker considers only part of the taxpayer in her decision on what expenditures to request.6 For example, a legislator from an agricultural district may care most about farmers, weight every additional dollar of spending equally, but think that the burden of paying for that additional spending would be only a fraction of the total burden for her constituency. Weingast, Shepsle, and Johnsen (1981) applied this framework to a legislator, while von Hagen and Harden (1995) and Hallerberg and von Hagen (1999) considered the implications of this problem for cabinet government. As they, as well as Velasco (2000) and Wyplosz (2013) argue, this type of problem leads to overspending in a one-shot game and over-spending and greater increases in the overall debt burden (assuming markets will lend to governments) if governments simply sum up the ideal budget of the different policy-makers responsible for a given field, but not responsible for the overall tax burden.

Some authors use this type of work to explain the introduction of fiscal rules as well as their function. The most common definition of them focuses on some sort of numerical cap, or limit, on what a government can do. The European Commission (2009), for example, computes a “fiscal rule index,” where fiscal rules are numerical limits on expenditure, deficits, or debts, and argues that European member states with more, and more robust, fiscal rules have better fiscal performance. Similarly, the International Monetary Fund now collects a dataset on fiscal rules around the world and updates it yearly.7 Its data show that, while only 2 (Australia and Germany) of 89 countries had a numerical fiscal rule in place in 1985, by 2014 more than half did. The European Union, which expects all member states to adopt fiscal rules, drives some of this increase, but about half of South American and African countries also have fiscal rules in place; they are less common in Asia.

Questions about the distribution of fiscal rules then beg the question about endogeneity, or about why some countries adopt them while others do not. Could it be that the factors that explain the adoption of the rules also explain the better fiscal performance? Researchers at the International Monetary Fund are aware of this issue, and DeBrun, Moulin, Turrini, Ayuso-i-Casals, and Kumar (2008), in work appearing in an academic journal, include instrumental variables to address this issue and still find that fiscal rules led to higher primary budget balances and declines in the overall debt burden in European Union countries.

Hallerberg, Strauch, and von Hagen (2009) also consider the endogeneity question, and they find that the institutional effectiveness of a given form of governance is conditional on ideological distance among relevant veto players. Moreover, the effectiveness of those institutions declines as one moves away from a given ideal. For example, a “strong” finance minister can promote fiscal discipline under one-party majority governments, but the same institutional setting will not function well if there is a multiparty coalition government the next period under the same fiscal rules. Countries that experienced previous fiscal crises were more likely to adopt fiscal rules.

Importantly, their definition of “fiscal governance” goes beyond simple numerical limits and considers the procedural rules for making the budget, and it address more directly the causes of a common pool resource problem by focusing on the rules for making the decisions. These authors concentrate on the procedures in place at four stages of the budget process: planning, approval in cabinet, approval in parliament, and implementation. This in turn follows loosely Wildavsky’s (1975) and Wildavsky and Caiden’s (2004) attempt to map out the politics of the budgetary process, but with a focus on European Union member states. Filc and Scartascini (2007) similarly find that increased fiscal institutional centralization leads to higher fiscal discipline in Latin America. Others focus on the type of coalition and its direct effects (rather than on its effects on fiscal institutions per se), with a focus in particular on commitment problems and monitoring of coalition partners (e.g., Martin & Vanberg, 2013; Bäck & Lindvall, 2015).

Wehner (2010) examines the role of legislatures in the budget process. Whether parliaments can amend budgets and how numerical limits are introduced in “top-down” reforms have real effects on the ability of legislators to change the government’s budget proposal. Martin (2011) combines work on electoral systems and parliamentary organization. He argues that systems that encourage a vote for the individual over the party and where parliamentarians are then expected to bring home specific benefits have stronger parliamentary committees. This, again, provides evidence that the underlying institutional differences affect fiscal policy outcomes.

In a related vein, there is a small, but growing, literature that examines the backgrounds of ministers in office and whether who the minister is affects the ultimate fiscal outcome. Chwieroth (2007, 2010) argues that “neoliberal” finance ministers and central bankers identified by whether they studied at certain U.S. universities are more likely to cut social spending in emerging markets, and by implication to care more about balancing the budget. Looking at German regional governments, Jochimsen and Thomasius (2014) contend that finance ministers with financial-sector backgrounds have more success in reducing budget deficits.

Alexiadou (2015) presents a rare model that combines type of minister with underlying fiscal rules. She classifies ministers according to whether they are ideologues, partisans, or loyalists. She then presents a bargaining game between a finance minister (MF) and a given spending minister. If the minister cares more about the office than the policy, then she is a loyalist and the MF has the upper hand—losing the MF means probable loss of office. She will anticipate this and accept a lower budget. If the minister cares more about the policy, she is an ideologue, and it takes more to buy out the minister. Employing two empirical strategies, with one considering the endogenous selection of ministers in the first step, Alexiadou finds that both ideologues and partisans have greater success in changing welfare state spending than loyalists do. She also examines the conditional nature of the argument and finds that the changes are smaller where the finance minister is a political heavyweight and where he has fiscal rules backing her.

Another component of fiscal institutions that has received increasing attention concerns fiscal transparency. Whether populations, and markets, can see and understand what governments are doing affects the type of fiscal policies they will impose. Alt and Lassen (2006a) note that countries with more transparent budgets have lower debt. Concerning the political business cycles discussed previously, they note in another paper (Alt & Lassen, 2006b) that voters do not reward extra spending prior to an election if they notice it. Their conclusion is that “the political business cycle is where you can’t see it” (p. 546). Alt, Lassen, and Wehner (2014) argue that the combination of European-level fiscal rules and pressure to use fiscal policy to win elections leads to more creative accounting and fiscal gimmickry in European Union countries with low transparency, or in places where governments can get away with it. Wehner and De Renzio (2013) ask which countries are likely to be more transparent, and they find that those with political competition—either in the form of competitive elections or in the form of active party rivalries in an elected parliament—lead to higher fiscal transparency.

Fiscal Crises and the Politics of Austerity

The recent financial crisis in most developed countries beginning around 2008, which quickly turned into fiscal crises in some countries, brought renewed attention to the politics of fiscal policy. Are politics different under crisis settings than under non-crisis ones?

There is a growing empirical literature that is especially good at documenting fiscal crises. Reinhart and Rogoff (2009), as the title of their book suggests, review eight centuries of financial crises. They argue that the root of most systemic “crises” is that someone has a debt problem. If it is the banking sector, there is a financial crisis. If it is the public sector, it is a sovereign debt crisis. One focus of their work concerns the likelihood that financial crises become fiscal crises a few years later. The logic that connects the two types of crises is that only the government has enough money to bail out failing banks. They conveniently post their data online and update it. Tomz and Wright (2013) document 248 defaults in 107 countries over the time period 1820–2013.

Going back to his previous work, one question Tomz (2007) seeks to answer is why investors ever lend to sovereigns if sovereigns default with some regularity. He dismisses the pure reputation argument in a review of evidence from other studies, such as Lindert and Morton (1989) and Aggarwal (1996). He provides instead a model of repeated play, incomplete information, and political change. Using a new dataset of investor losses, or haircuts, for the period 1970–2010, Cruces and Trebesch (2013) come to a different conclusion on the pure reputation model, namely that countries that had governments impose greater haircuts paid for this behavior in terms of higher subsequent bond yield spreads and a longer period of capital market exclusion.

Rosas (2009) and Keefer (2007) separately argue with different datasets that regime type is the critical variable in determining the costs to the public sector of financial crises. They each contend that bailouts during banking crises will be smaller under democracies than under autocracies. The scale of the potential bailout is large enough that special interests that do quite well under autocracies cannot get away with the same perks under democracies, where most of the population bears the financial burden for the bailout.

There is a growing body of work that examines how governments respond to fiscal pressure. Walter (2013) considers the vulnerability of voters to macroeconomic internal and external adjustment. This vulnerability, in turn, affects the type of policies governments are willing to impose to try to get the economy back in balance. Schelkle (2012) examines adjustment in the two most important countries in the European Union, France and Germany, and she finds that Germany was one of the more fiscally activist countries at the height of the crisis. Others look at specific parts of the government response; Lodge and Wegrich (2012) focus on executive politics under crisis. While written by an economist for a more general audience, Blinder (2013) provides a superb analysis of the reasons for the crisis in the United States and the government’s fiscal, and monetary, responses. Rather than look at government responses, Jones (2015) looks at causes of the crisis in Europe, and he argues that one should focus on the financial aspects rather than just on the public debt dynamics.

There is a broad literature that focuses on the role of ideas to explain the introduction of austerity policies in reaction to crises. The best-known is by Blyth (2013), who argues that budget cuts do not boost economic growth especially in Europe. They are not necessary to deal with prior overspending but to backstop banks that have grown too large and that need fiscal capacity in the public sector to bail them out again. The idea and rhetoric of “austerity” helps cover this inconvenient fact. McNamara (1998), while not writing directly on “crisis,” describes the convergence toward neoliberal conceptions of economics that helped create the consensus for Economic and Monetary Union in Europe in the first place.

Concerning the consequences of austerity, there is debate about whether populations punish governments that introduce tax increases or spending cuts, which together constitute “austerity” measures. Giger and Nelson (2011) find that voters generally do not punish governments that cut social spending, and in fact religious and liberal parties gain votes. Presumably, however, the threat that cuts could harm support for parties affects what they do. Wenzelburger (2014) argues that they perceive they will be punished even if they are not in practice, and they act accordingly. Hübscher and Sattler (2014) note the strategic component to these discussions—precisely because governments expect to lose support, they introduce austerity measures only immediately after elections where their electoral positions are not secure, but they impose such policies throughout the electoral cycle where they expect to win the next election regardless.

Herzog and Benoit (2015) have a different chain of causation, namely from austerity policies to support for the government in parliamentary speeches. They use automated text analysis to code the speeches parliamentarians gave in Ireland over a 25-year period to consider the strain that austerity budgets put on party unity, with back-benchers and those from constituencies more economically vulnerable more likely to speak against the government budget.

Crises may also play a positive role when it comes to fiscal reforms. Alesina and Drazen (1991) argue that such periods allow governments to resolve “wars of attrition” where different constituencies in government refuse to bear the burden of adjustment. A tax reform that eliminates incentives and broadens the base, for example, increases the tax burden on the various constituencies. Linking the fiscal institutional literature to the crisis literature, Hallerberg and Scartascini (2015) find that fiscal institutional reforms do not happen during financial crises in Latin America but are much more likely during debt crises.

Past Work and Future Vistas

Different aspects of fiscal policy have been examined, and the main literatures on these topics has been reviewed. Across the policy areas, three types of explanations appeared repeatedly—globalization/international pressure, partisanship, and political institutions. The focus has been on developed countries because there is much more literature written on this set of countries. Where possible, work on emerging markets and low income countries has been highlighted. There has not been space to cover such aspects as “fiscal federalism,” which deals with how the organization of the fiscal state over different levels of government may affect outcomes. While there is an established literature on that topic (e.g., Rodden & Wibbels, 2002; Rodden, 2006; Diaz-Cayeros, 2006; Qian & Weingast, 1997), there are others that deserve more research.

One avenue of work concerns research that may, or may not, underpin some of the main recommendations for fiscal reforms. As one policy-maker from an international funding body maintained, there is very little work on the political economy of fiscal reform that examines the circumstances under which a given reform is introduced and when it works.8 When one applies this comment to specific topics, one can see that the amount of serious work varies widely, with some policy recommendations receiving more consideration than others. There are many studies in development economics, for example, that concern micro-financing and micro-credit for individuals in emerging markets that either the public or private sector can provide, and the boom continued after Muhammad Yunus and Grameen Bank received the Nobel Peace Prize for their work in the field in 2006. Not only are there a plethora of articles on whether they materially improve the lives of the poor, with a growing consensus that they may be less helpful than first thought (e.g., Banerjee, 2013; Blattman, 2015), but there are banks that provide such funding tools to individuals in the field. But most of the academic work does concern whether these programs “work,” be it in terms of personal well-being or economic growth. Randomized control trials are ideal ways to assess these effects. But there are broader political questions that could also be asked to relate very much to “fiscal politics.” How do these programs, which may receive either direct support (e.g., from public banks) or indirect support (e.g., tax breaks) from the public budget, affect political support for the incumbent government? What do they mean for ongoing programs meant to increase the well-being of the poor? Is there a substitution or a crowding out effect? There are some exceptions that consider the political side, but more work would develop this side of the policy area.

There are other examples of fiscal policy tools that receive much less attention on the more “micro” side of fiscal politics. “Participatory budgeting” is topical, and promising, with the first success coming in the city of Porto Allegre, Brazil. Good social science studies, however, are rather thin. A terrific exception is Díaz-Cayeros, Magaloni, and Ruiz-Euler (2014), who examine participatory democracy at the local level in Mexico; they find that municipalities increase access to electricity, water, and schools more in places with direct voter participation compared to when policy-makers, who are political party members, make the decisions. Yet, as is the case for several such studies, it is unclear how much to generalize from the individual cases; as these authors note themselves, Olken (2006) found that grass-roots participation in fiscal policy-making did not have much effect on outcomes in Indonesia, with corrupt practices undermining the attempt to redistribute rice.

Another micro fiscal policy–focused topic concerns citizen budgets. The Open Budget Initiative (among others) encourages governments to produce such a document, which summarizes the key budget figures. The idea is to educate the overall population, which should lead to better informed voters. Many governments have developed such documents, some because of donor urging and some so that their ranking in such indices goes up. There is essentially no research that considers what is included and what effects they have on voters. This would be an obvious frontier for experimental work. Relatedly, international organizations have discussed “gender budgeting” for over two decades, and some countries like Austria and cities like Berlin have integrated such techniques into the budget process. There are plenty of anecdotes that suggest that these methods improve allocative efficiency, but systematic studies are few and far between, and there is no known work that first considers why a given government introduced the technique before examining its effects.

These examples concern specific policy tools that are fiscal in nature at the micro level, and that certainly have their own politics. The big questions discussed earlier have more research histories, but the recent economic crises, the continued rise of emerging markets, and the persistence (and even success of) authoritarian systems like China suggest that the ground on which these previous works, which often rely on data from more routine economic times in developed democracies, may shift. They deserve continued attention from scholars as well.


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(1.) Schumpeter ([1918] 1991, p. 101), as cited at I. W. Martin, A. K. Mahrotra, and M. Prasad (2009).

(2.) For survey evidence on the compensation hypothesis, see Walter (2010).

(3.) See also Rudra (2008).

(4.) See also Milesi-Ferretti, Perotti, and Rostagno (2002).

(5.) See an extension in Hindriks and De Donder (2003).

(6.) This is the “tragedy of the commons.”

(7.) See the International Monetary Fund, Fiscal Rules Dataset: 1985–2014. The original paper discussing this work is Budina, Kinda, Schaechter, and Weber (2012).

(8.) See also Rommerskirchen (2015).