Multiparty Government, Fiscal Institutions, and Public Spending

A large body of research has claimed that budget making by multiparty governments constitutes a "common pool resource'' (CPR) problem that leads them to engage in higher levels of spending than single-party governments and, further, that this upwards fiscal pressure increases with the number of parties in the coalition. We offer a significant modification of the conventional wisdom. Drawing on recent developments in the literature on coalition governance, as well as research on fiscal institutions, we argue that budgetary rules can mitigate the CPR logic provided that they (1) reduce the influence of individual parties in the budget process and (2) generate endogenous incentives to resist spending demands by coalition partners. Our empirical evaluation, based on spending patterns in 15 European democracies over nearly 40 years, provides clear support for this contention. Restrictive budgetary procedures can eliminate the expansionary fiscal pressures associated with growing coalition size. Our conclusions suggest that there is room for addressing contemporary concerns over the size of the public sector in multiparty democracies through appropriate reforms to fiscal institutions, and they also have implications for debates about the merits of "proportional'' and "majoritarian'' models of democracy that are, at least in part, characterized by the difference between coalition and single-party governance.