Fiscal Policy and Fractionalization

Martin Switaiski

mrt 2004 · GRIN Verlag

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Seminar paper from the year 2004 in the subject Economics - Monetary theory and policy, grade: 2.0 (B), Free University of Berlin (Economics), course: Seminar, language: English, abstract: Political fragmentation is regularly considered to be a relevant factor affecting the outcomes of fiscal policy. It is assumed that a fragmented fiscal policy process leads to higher expenditures and subsequently in a higher deficit. But “hard evidence” in support of this hypothesis is rare, and conclusions can only be drawn very carefully. The present paper gives an overview of the existing literature on the role of (size) fragmentation and its effects on fiscal policy outcomes. The main focus is on the work contributed by Yianos Kontopoulos and Roberto Perotti, who used a panel of 20 OECD countries over 1960-1995 for their analysis of government fragmentation.