Does Divided Government Guarantee Fiscal Responsibility?

By :: October 28th, 2008

The ordinarily very astute EconomistMom blithely asserted that there is "a lot of historical evidence suggesting that one-party government tends toward fiscal irresponsibility." Maybe not. Some time ago, I asked Urban Institute RA, Sonya Hoo, to review the evidence from states, over time, and across countries. She found the evidence of such an effect to be quite ambiguous.

To see why, suppose that there is a McCain Administration—admittedly a long shot at this point. Senator McCain might decide to veto all of the Democrats' spending bills and they might thwart all of his tax promises (producing gridlock and fiscal responsibility by default). Or he might decide he doesn't want his entire legislative agenda to be held hostage to partisan gridlock.  In that case, horse-trading could lead to more spending and lower taxes than we'd see in an Obama administration.

The effect of divided government thus depends on whether McCain's promise of bipartisanship trumps his promise to wield a ruthless veto pen—something that's impossible to predict a priori.

4Comments

  1. Anonymous  ::  2:56 am on October 28th, 2008:

    Len: well, yes, you are right that I too quickly asserted such an empirical relationship. In fact, in the only paper I've ever coauthored with my husband (in mid-1990s when you and I were working at CBO together!) we looked at “political competition” and state government size and indeed found “mixed results”–although notice that on page 13 we found that Democratic governors appeared to lead to larger government when the House was largely Democratic. So perhaps that's the “historical evidence” that's biasing my expectation of the political pressures for larger government under an Obama Administration and a Democratically-controlled Congress. (And note from the references cited in that working paper that one Doug Holtz-Eakin is listed…)
    Here is a description of the final version we published in a 2000 issue of Public Choice: http://www.springerlink.com/content/u852w85nl072k020/
    Note that the abstract for the final published version asserts the “big government” tendencies of Democratically-controlled governments a little more strongly.

  2. Anonymous  ::  2:58 am on October 28th, 2008:

    whoops– here's the link to the earlier working paper version:
    http://www.federalreserve.gov/Pubs/Ifdp/1995/500/default.htm

  3. Anonymous  ::  9:24 pm on October 28th, 2008:

    Diane, Thanks. My RA did not find your article with John so I’m glad you pointed it out.
    Here is an interesting part of what my Sonya found: Conservative, Bill Niskanen concluded that divided governments lead to more spending. Liberal columnist Michael Kinsley found the opposite.
    In an interesting cross-country comparison, Alberto Alesino found that Great Britain, where the executive and legislative branches are necessarily from the same party, had a debt to GDP ratio of 60% while countries such as Belgium and Italy, which have fragmented coalition governments, have debt to GDP ratios of over 120%.
    Of course, there may be other differences between UK and Italy–food for example. Maybe divided governments produce better food. Yum!
    Refs
    Alesino, Alberto. 2000. “The Political Economy of the Budget Surplus in the US.” NBER Working Paper 7496.
    Kinsley, Michael. “Numbers don’t lie but sometimes they mislead.” Slate. February 17, 2006. Article at http://www.slate.com/id/2136481/ and spreadsheet at http://slate.com/kinsley/2006-02-17/kinsley_chart5.html.
    Niskanen, William. 2003. “The Case for Divided Government.” The Cato Institute. http://www.cato.org/dailys/05-07-03.html.

  4. Anonymous  ::  9:24 pm on November 3rd, 2008:

    Even with a veto proof congress, wouldn't the various interests of individual congressmen and their constituencies tend to lead to horse trading even with an Obama administration?