Bulletin n. 1/2005 | ||
December 2005 | ||
Ashwort John, Heyndels Bruno |
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Government fragmentation and budgetary policy in good and bad times in Flemish municipalities | ||
in Economics and Politics , Volume 17 Issue 2 , 2005 | ||
Using a panel of budgetary data over the period 19891996, we analyse how political fragmentation of Flemish local governments affects their reactions in the context of a major reform of the grant system. This reform reallocated grants among municipalities and thus unavoidably created winners and losers. Thus, it is possible to distinguish between political reactions in good and bad times. The presence of a balanced budget requirement implies that in bad times municipalities have to react whereas in good times the decision to react is endogenous to the government. The results are in line with the hypotheses, if not the findings, of Kontopoulos and Perotti (1999) in that we find that fragmentation is important both in good and in bad times. Coalition size the number of political parties plays a crucial role when the budgetary shock is endogenous (in good times when grants increase). In this case, we find that more-party governments spend more of the additional funds. On the other hand, cabinet size the number of spending ministers (aldermen) is the relevant dimension of fragmentation when the reaction is exogenous (in bad times). When grants are cut back, expenditures are cut back more in municipalities with fewer ministers. | ||