Does Divided Government Guarantee Fiscal Responsibility?

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.