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Politics or perceptions? The fiscal consequences of uninformed policy makers
(English)Manuscript (preprint) (Other academic)
Abstract [en]

Cross-national variations in fiscal performance have traditionally been seen as resulting from differences in electoral systems and types of government. However, such politico-institutional explanations appear to be sensitive to the time-period analysed. This paper provides a new explanation of why some countries have managed to consolidate public finances, while others have accumulated unsustainable levels of debt. Using real-time data for a panel of 31 OECD countries over the 1997-2012 period, the paper shows that governments have responded to biased economic forecasts with more expansionary fiscal policies than they would have if projections had been unbiased. The estimated effects are large. On average, biased projections have weakened annual budget balances by approximately one per cent of GDP.

National Category
Political Science (excluding Public Administration Studies and Globalization Studies)
Research subject
Political Science
Identifiers
URN: urn:nbn:se:uu:diva-274340OAI: oai:DiVA.org:uu-274340DiVA: diva2:896312
Available from: 2016-01-20 Created: 2016-01-20 Last updated: 2016-03-09
In thesis
1. Austerity Politics: Is the Electorate Responsible?
Open this publication in new window or tab >>Austerity Politics: Is the Electorate Responsible?
2016 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis contributes to the public finance literature concerned with fiscal sustainability, and consists of an introduction and four stand-alone essays. The first three essays analyse the reasons why governments accumulate large levels of debt. In the first essay, I find that parties that implement fiscal consolidations are punished by the voters in the following election. However, there does not appear to be a rewarding effect for governments that implement fiscal expansions. The second essay, which is co-authored with Rafael Ahlskog, shows how voter opposition to fiscal consolidation is shaped by moral considerations and feelings of personal responsibility. More precisely, we argue that voters are more likely to refuse fiscal consolidation when they do not feel responsible for the public debt. The third essay argues that misperceptions about the business cycle would have caused fiscal problems even if policy-making was conducted by independent experts. According to my estimates, biased projections have weakened annual budget balances by approximately one per cent of GDP. In the fourth essay, I argue that budgetary mechanisms created to improve fiscal discipline have a bias toward a reduced public sector. Because discretionary decisions are usually required to adjust public expenditures to price and wage increases, periods of rapid growth have repeatedly caused the welfare state to shrink. I use the introduction to discuss the commonalities between the essays and to situate the field of public finance in a broader, historical context.

Place, publisher, year, edition, pages
Uppsala: Acta Universitatis Upsaliensis, 2016. 35 p.
Series
Digital Comprehensive Summaries of Uppsala Dissertations from the Faculty of Social Sciences, ISSN 1652-9030 ; 124
Keyword
Deficit bias, Fiscal policy, Perceptions, Political economy, Responsibility, Retrospective voting
National Category
Political Science (excluding Public Administration Studies and Globalization Studies)
Research subject
Political Science
Identifiers
urn:nbn:se:uu:diva-274342 (URN)978-91-554-9459-9 (ISBN)
Public defence
2016-03-11, Auditorium Minus, Gustavianum, Akademigatan 3, Uppsala, 10:15 (Swedish)
Opponent
Supervisors
Available from: 2016-02-19 Created: 2016-01-21 Last updated: 2016-03-09

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Nyman, Pär

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Output format
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