Fiscal Governance and Government Investment in Europe since the 1990s

Stringent fiscal rules and budgetary procedures might generate incentives for political decision-makers to cut predominantly productive public investment during periods of fiscal consolidation. While the influence of the European Stability and Growth Pact on public investment received a lot of attention in the empirical literature, only a few studies consider the impact of different budgetary decision-making rules and procedures at the national level on government investment spending. We test empirically for the effect of political factors and the institutional framework of budgeting on public investment in EU 15 over the period 1990-2005. Our results show that stringent quantitative constraints limit government investment, but a centralisation of budgeting procedures by providing more agenda setting powers to the finance minister (delegation approach) or by the use of medium-term fiscal contracts are not related to public investment spending cuts

The Impact of Growth Performance and Political Regime Type on Economic Policy Liberalization

The paper investigates empirically the interaction between economic growth performance and political institutions in producing free-market reform. In particular, we explore whether political regime types systematically shape government policy responses to good or bad growth performance, employing panel econometric techniques and using recently updated data for economic reform and political institutions. Contrary to conventional wisdom we find that a bad growth performance is conducive to reforms only in democracies, but not in autocracies. Democratic rule seems to be favourable for policy liberalisation in general, but a very good growth performance weakens liberalisation incentives considerably

OPTIONS OF FINANCING THE CAP – CONSEQUENCES FOR THE DISTRIBUTION OF FARM PAYMENTS

The introduction of decoupled direct payments in the EU was a substantial change of the Common Agricultural Policy (CAP) in 2003. After decoupling direct payments from production, it has become evident, that distributional objectives are the major justification of farm payments. There are three facets: the distribution of payments among farmers within member states, the distribution of payments among member states, and the distribution of household incomes within member states. All of them will be affected if the volume and allocation of funds for the CAP will be changed in the new financial framework of the EU. The paper addresses the first distributional aspects. We provide an overview of the development of past and present research and findings on the distributional aspects of direct payments. We use the theory of federal fiscal relations to identify the policy agendas that should be handled at the EU level, at national levels, and at sub-national levels. We analyse how measures of concentration are affected if the criteria of direct payments are changed (e.g. a modified modulation scheme). This allows us to identify potential consequences after changing the way direct payments are distributed within EU member states. The summary of the paper discusses the distributional consequences of scenarios of the coming financial framework as far as agriculture is concerned.Direct Payments, Distribution, Common Agricultural Policy., Agricultural and Food Policy, Political Economy, Q18,

Legislative Malapportionment and the Politicization of Germany’s Intergovernmental Transfer System

Legislative bargaining theory suggests that fiscal transfers among member states of a federation are determined to a substantial degree by political bargaining powers. Malapportionment of the states' population in the legislature is claimed to lead to disproportionally higher benefits to overrepresented states. The present paper analyses empirically the distribution of fiscal transfers in Germany's intergovernmental transfer system over the period 1970-2002. It can be shown that overrepresented states in the upper house receive disproportionate shares of transfers, while malapportionment in the lower house does not seem to matter. We also find empirical evidence that overrepresentation became more important over time.legislative bargaining, overrepresentation, fiscal transfer system, Germany

Growth Implications of Structure and Size of Public Sectors

The relationship between government size and growth has received an enormous attention in the economics literature, and the recent financial crisis has forced this topic back on the agenda. A highly controversial debate in this respect is whether large governments are harmful for growth. Endogenous growth theory provides us with the view that tax structure and the composition of public expenditure may be important for growth, perhaps even more than total tax or expenditure levels. Government size and structure are, however, also reflected in the level and structure of market regulations, which may substitute or complement fiscal intervention. The study provides an overview of the growth-friendliness of fiscal and regulatory structures in a cross-section of EU 15 and EU 12 countries and highly developed OECD countries. Peripheral European (transition) countries are also included, whenever respective data are available. Our analysis is based on several measures capturing the expenditure and the tax side of the budgets, as well as regulatory policies. It is shown that the size and the structure of fiscal and regulatory regimes and, hence, the expected long-run growth impact of government activities, still differ markedly across countries

Free to Choose? Economic Freedom, Relative Income, and Life Control Perceptions

Recent research has shown that the degree to which people feel they are in control of their lives is an important correlate of individual happiness, where those that feel more in control are also found to be systematically happier. In turn, the economic sources of perceived life control are only insignificantly established in the relevant literature. The present paper employs individual data from the most recent version of the World Value Survey, covering the period from 1981 to 2013, to establish the macro-determinants of individual life control. We find that living in a country with high overall economic freedom is a major determinant of feeling in control of one's own life. The effect is very similar for individuals in high and low income countries, while the impact of democracy is negligible in both cases. Interacting relative income with economic freedom, we find that - contrary to conventional wisdom - it is by far the lower income groups that derive the biggest gain of perceived life control from living in a country with comparatively high economic freedom

The interrelation of informal institutions and governance quality in shaping Welfare State attitudes

This paper addresses empirically determinants of individual support for the Welfare State. We examine the interrelation of informal institutions with the perceived quality of a country's institutional framework. As a proxy for informal institutions, we concentrate on three core beliefs (trust in other people, perceived control over one's own life, and religiousness) which reflect different aspects of the way people feel about internal and external constraints in managing their own lives. To analyze preferences we follow a comprehensive concept of the Welfare State, measuring attitudes toward its two basic roles, (income) redistribution and government intervention. For this purpose the paper uses survey data from the World Values Survey/European Values Study as well as different indicators for governance quality. Our results indicate that people who interpret their life course as being not at their own disposition report a substantially more positive attitude toward income equalization and government interventions. A higher quality of public administration and low confidence in major private companies amplify preferences for redistribution and intervention of people under such an external locus of control. Social trust is generally associated with higher support for redistribution and government intervention only if perceived quality of administration is high and confidence in companies is low. People who assert themselves as religious are less favorable toward income equalization. While variation in administration quality does not appear to have an impact on the relationship between religiousness and income equalization preferences, religious people are substantially less supportive of redistribution and government intervention especially if confidence in major companies is high