Presidentialism, Bicameralism, Federalism and Budget Deficits:
The Effects of Political Institutions on Government Spending
Pedro Neiva
(Cebrap - Brazil)
Paper presented at the 21st Word Congress of Political Science - IPSA
Santiago – Chile – July 12 to 16, 2009
In this study I evaluate the impact institutional factors have on fiscal outcomes in
approximately one hundred countries. I am primarily concerned with verifying until
what point the traditional forms of separation of powers – presidentialism,
federalism, and bicamerailism and the combination among them – influence
budget balance in the countries being analyzed.
Ever since Roubini and Sachs’ (1989b) classic study, the literature has claimed
that purely economic models cannot fully explain the fiscal behavior of different
governments. More and more so, political institutional factors have been used to
explain the differences in budget experiences. A frequent argument in these
studies is that a fiscal situation is correlated to political fragmentation or to the
number of actors present in the political system. The idea is that the fragmentation
of power increases the pressure on limited fiscal resources which, in turn, creates
inefficient budget policies. In other words, it is believed that the greater the number
of veto players1, the greater the need for making concessions in order to reach
decisions and implement policies. Consequently, it is implied that government
spending should be higher while the possibility of reducing spending should be
lower.
Much of the existing literature presents various factors that can be responsible for
the increase in deficits. Some of them refer to the level of government
cohesion/fragmentation, which include the following aspects: the number of parties
(Roubini & Sachs, 1989a); the number of non-partisan ministers and the level of
parliamentary support a government has in the Legislature (Elgie & McMenamin,
2008; Perotti & Kontopoulos, 2002); the size of government coalition and the
ideological distance among its members (Mulas-Granados, 2003; Poterba, 1994;
Elgie & McMenamin, 2008; Tsebelis & Chang, 2004).
Other explanations for the increase in deficits are related to both the period a
government is in office and the occurrence of elections. Frequently, the literature
suggests that fiscal policies are less likely to be made when there is an upcoming
election, particularly since these actions require unpopular measures (MulasGranados, 2003; Mierau & Pin, 2007). This is especially true in cases where the
opposition is expected to win and gain power (Alesina e Tabellini, 1987).
The three institutional aspects I will be focusing on in this study include
presidentialism, bicameralism and federalism. These three aspects have not
received as much attention by the literature, particularly with regard to their
relation to the elements that increase deficits. It is known that the legislative plays
an important role in defining the priorities and the allocation of resources in a
democratic system. There is also nothing revealing about the fact that the
relationship between the executive and legislative takes on different characteristics
according to both the form of government and the federative regime. Nonetheless,
it is important to consider how these configurations, analyzed in both an isolated
manner and in a combined form, can influence the outcome of fiscal policies.
Presidencialism, Bicameralism, Federalism
Since Linz’s (1994) classic study, which has generated widespread discussion, the
debate regarding presidentialism has been lively and has also presented a clear
evolution. According to Linz and his followers, the presidentialist system presents
a much lower capacity for promoting and maintaining democracy, vis-à-vis
parliamentary systems. Even within such a strongly pessimistic perspective in
relation to this system, various authors presented contributions in the sense of
contesting or diminishing such criticisms (Shugart e Carey, 1992: 43-44; Power e
Gasiorowski, 1997; Cheibub, 2007). Shortly afterwards, the discussion about the
effects of presidentialism on fiscal policies came about, often considered as a
difficulty encountered by presidents who were not capable of controlling spending.
This would mainly occur as a result of the pressure of parliamentarians who would
demand concessions in favor of support in the legislative (Cox e McCubbins,
2001).
Nonetheless, recent studies (Persson e Tabellini, 2003; Persson et. al, 2000; Woo,
2003: 402; Cheibub, 2006; Brender and Drazen, 2005a; Mukherjee, 2003) have
shown that deficit control is greater in presidentialist countries vis-à-vis
parliamentarian ones. Cheibub (2006) points to two fundamental differences
between the two government systems which end up having an influence on
deficits. First, one must take into consideration the fact that a president is assured
of his permanence in power since elections are independent of the legislative, his
term is fixed and his power cannot be taken away by a vote of confidence. These
would reduce the credibility of threats from the opposition or from partners in a
given coalition. Second, one must consider that the electorate has the capacity to
identify and punish those responsible for economic policies. Both of these factors
create greater responsibility from the fiscal point of view. According to Cheibub,
the opposite would happen in parliamentary systems, where governments depend
on the support of the majority of the legislative in order to exist.
However, in order to deal with the effects a type of regime has on public spending,
it is necessary to have a better understanding of the characteristics of such
systems. In the first place, it is important to consider that authors have adopted
very different criteria for classifying the systems, particularly when one is dealing
with the so-called hybrid systems (or mixed), also known as semi-presidentialist
systems. Mainwaring and Shugart (1997: 3) claim that the variation among
presidentialist countries can be just as important as the difference between
presidentialism and parliamentarianism. In the same direction, Shugart and Cary
(1992:2) warn against the inadequate perspective of claiming that presidentialist
systems are simply the opposite of parliamentary ones.
Given this context, I will use two different criteria in the characterization of the
systems. The first criterion, suggested by Cheibub (2007), is the one in which a
country is classified as presidentialist when a government cannot be removed by
the legislative. This simple classification, allows me to establish the
interconnection between the government system and both bicameralism and
federalism. The second criterion seeks to define not only the separation between
presidentialism and parliamentarian systems, but also seeks to understand the
degree to which this occurs and the impact of these differences. Therefore, this
study will rely on the “presidentialism index” proposed by Siaroff (2003). This index
takes into consideration the political force of the presidents and involves not only
“pure” presidentialist systems but also semi-presidentialist ones. In addition to
favoring a more adequate treatment of these systems, in contrast to a
dichotomous classification, this strategy allows me to compare countries within the
same category. As a result, the index contains 9 intervals and covers 58 countries
within my sample.2
Other authors have used classifications of presidential powers (Shugart e Carey,
1992; Mainwaring and Shugart, 1997). However, these studies deal with much
fewer countries, making it impossible to use such classifications in this study.
Cheibub (2006: 364) considers specific presidential powers related to the control
of the budget process: the general veto power of legislative proposals; the power
to initiate and amend issues related to the budget; and the fact that when the
legislative does not approve a budget, the president’s budget is considered.
Bicameralism
The studies on the upper houses and on bicameralism are much rarer. In addition,
one cannot affirm that there is a systematic discussion of these themes. In part,
this situation can be explained because of the diverse configuration of these
legislative houses, an aspect that is much more evident than that found in the
lower houses. In the main study on this topic, Tsebelis and Money (1997)
understand this context quite well by calling it “protean.” 3 This characterization is a
result of the upper houses’ diversity and capacity to easily change its form and
function.
In spite of these factors, some authors claim that even weak upper houses can
affect the decision making process, by using their power to delay the roll call
voting (Tsebelis and Money, 1997; Heller, 1997; Bradbury and Crain 2002).
Nevertheless, there are few empirical studies that can verify such affirmations.
With regard to public spending, Crepaz and Moser (2004) analyzed 15 countries of
the OECD for 17 years and discovered that bicameralism has a negative effect on
the consumption of the central government. Thornton and Ulrich (1999) found a
negative effect of bicameralism on government spending in several states of the
USA. Vatter (2005: 209) affirms that bicameralism inhibits both government
interference in the economy and welfare state. This consequently favors liberal
pro-market orientations.
Heller (1997) offers an important study on this theme. His study verified that
bicameral countries tend to present higher budget deficits. The author’s argument
is that given the fact the budget has to pass in two houses, a bicameral parliament
forces the government to include more spending in its budget.
A problem of Heller’s study, which is applicable to the vast literature in this area, is
that is focuses on developed and industrialized countries and does not go beyond
the 1990s. 4 The author limited his analysis to parliamentary countries, excluding
presidentialist ones where there are upper houses with vast powers and peculiar
characteristics (Neiva, 2006). The data on the fiscal situation in these countries
was quite limited at the moment the author completed his study. This is one of the
reasons for the author’s assumption that this phenomenon was in fact universal,
when his sample did not allow him to assume such. The study, consequently, did
not capture the recent progress observed in terms of budget balance in Latin
American countries. Even though it is much more difficult to find information
regarding less developed countries, I believe it is essential to create extensive
samples that are capable of encompassing the diversity of the political institutions
of these countries. By including a hundred countries in the sample, I intend to
reduce the dimension of this problem.
In the same manner I treated the previous variable, I will use a more refined
measurement of bicameralism, treating the great variation that exists in upper
houses more adequately. I will use a scale created by Neiva (2006, updated in
Neiva, 2008), which verifies the political force of these legislative houses. This
index not only includes the capacity to initiate, reject and amend legislative
proposals, but also a wide range of constitutionally established attributes. The idea
is that, beyond participating in the legislative process, the House also exercises its
power when it examines and controls the Executive power or when it approves the
nomination of authorities, in addition to other constitutional duties. For a detailed
description of the prerogatives considered and the respective weight in defining
this index, see Neiva (2006).
If there is a great variation in the political force of the upper houses, whose index
of power varies from a minimum of 4 to a maximum of 32, one expects the
consequences of this to also be varied. Hence, the expectation is that the capacity
to demand government concessions increases along with the increase in such
powers. This process would in turn create an increase in budget deficits.
Federalism
The third variable that interests me is federalism, which also involves the
discussion about veto players. The idea is that national governments can feel
tempted to support allies at a sub-national level or feel obligated to negotiate with
regional leaders, who have influence over parliamentarians in their regions
(Abrúcio, 1988, 1997; Tommasi, Saiegh, and Sanguinetti, 2001). This influence
would be even greater in countries where parliamentarians tend to continue their
political careers outside of the legislative (Samuels, 2003). In the same direction,
Fabrizio and Mody (2006) verify that decentralized governments tend to be less
conservative from a fiscal point of view. Or in other words, they tend to spend
more than centralized governments.
The consequence of this would be a pressure on government spending and an
increase in the deficit. In fact, this is what some authors have found in developing
federative countries (Wibbels, 2000), especially in Latin America (Samuels, 2000;
Stepan, 2000; Dillinger and Webb, 1999). On the other hand, Leachman et al.
(2007), Wibbels (2003), Crepaz (2002) and Tavits (2004) suggest that federative
arrangements tend to present greater fiscal responsibility.
When evaluating the situation in the 15 of India’s larger states, Khemani (2007)
discovered that their contribution to government deficit depends on the relationship
with the dominant national party. According to the author, the higher the regional
competition, the greater incentive there is for budget balance. He verified that the
states administered by the same party as the central government presented
deficits significantly higher than states administered by non-allied parties.
Hallerberg and Marier (2004) did not find a significant impact with regard to the
federative arrangement on deficits in Latin American countries.
There is a great variety in the forms of federalism present today, much in the same
manner I have claimed occurs for presidentialism and bicameralism. It is possible
to find, among the formally federative countries, a high degree of centralism. This
also occurs in countries which, in spite of being unitary, are quite decentralized.
However, detailed information about institutional characteristics related to
federalism and/or the degree of centralization are not available for many of the
countries. In addition, they rarely include those countries outside of Europe or the
ones that belong to the OECD. Given this fact, I concentrated my efforts on
classifying countries as federative or not, according to the classification of the
“Forum of Federations,” an organization dedicated to the development,
maintenance and creation of new federative arrangements in the world.
An innovative factor that I present in this research, in relation to previous studies,
is that in addition to testing the effects of institutions individually, I evaluate the
impact created from the interaction among these very institutions in question. It is
one thing for a country to adopt a presidentialist system; another fact is to present
oneself as presidentialist and bicameral. A third situation would be the combination
of presidentialism, bicameralism and federalism. The expectation is that the
combination of these variables presents information both about the amount of
deficit and the individual characteristics of each of these countries. These
configurations, when used simultaneously, can bring results which have not been
noticed before in studies in this area. In the case of Brazil, for example, in addition
to having a strong president, the Senate also seems to have had a fundamental
role in fiscal behavior, bringing together regional and national interests (Loureiro,
2001).
Few institutional changes were made, during the period of this study’s analysis,
within each of the countries. This reaffirms the arguments set forth by the analytic
framework known as “path dependence”, which claims that once decisions are
made, it is very difficult to change them. This is because those who benefit from
certain established practices and structures will, as a result, strongly oppose
changes. In fact, there is no evidence that a country has changed from having a
presidentialist system to a parliamentary one, with the exception of Brazil in 1962
and which lasted a little more than a year. The creation and dissolution of upper
houses and the adoption of a federative system are also not common, but occur
more frequently. In the period analyzed in this study, Venezuela, Croatia and
Nepal all dissolved their upper houses in December 1999, March 2001 and
January 2007, respectively. Ethiopia, South Africa and Serbia and Montenegro
became federative systems starting in 1994, 1996 and 2003, respectively.
In the following sections, I present my dependent variable as well as potentially
important variables that can explain deficits. These will be used to control the
effects of the institutional variations previously mentioned. I begin with political
factors that are related to government fragmentation and both party and electoral
characteristics. Afterwards, I take into consideration economic and social
variables, which are also important to explain this phenomenon.
Dependent Variable
The dependent variable is the government’s budget balance, expressed as a
simple measurement of revenue minus expenditure. This was used by Cheibub
(2006) in his study of 98 countries. In order to compare the countries, the
comparison will be done according to the Gross National Product. The study will
consist of an analysis of each country from 1997 to 2007. Since I am working with
101 countries, I will have approximately 1,100 cases in my sample.
Control Variables
The degree of fragmentation of the government and of the political system has
been frequently considered in explanations concerning government deficits. A
majority of the literature affirms that single-party majority governments force
subnational governments to approve all efforts for budget balance (Blanchard &
Shleifer, 2001; Jones, Sanguinetti, & Tommasi, 2000; Dillinger & Webb, 1999;
Samuels, 2000; Stepan, 2000).
Another perception is that the existence of minority governments, which are
associated with greater party fragmentation, makes the Executive power obligated
to negotiate and attend to the demands of other parties, whether these parties
support the president or not. According to Alesina and Drazen (1991) and Roubini
and Sachs (1989a, 1989b), it can be more difficult to promote the necessary
changes for deficit reductions in coalition governments where parties fight for the
exercise of power.
Kontopoulos and Perotti (1999) claim that fragmented governments present higher
budget deficits. Mukherjee (2003) verifies that a higher number of parties causes
both a reduction in spending on public goods and an increase in spending on
subsidies and tax transfers, which in turn promotes economic inefficiency. Woo
(2003:399) examined that the addition of one minister in the cabinet is associated
with an increase in the Gross National Product’s public deficit by 0.2%. Studies at
the local level in Norway (Borge, 2005) and at the state level in the United States
(Alt e Lowry, 1994; Poterba, 1994) also show that divided governments tend to
provoke higher deficits.
On the other hand, other authors did not find evidence that the number of parties
in the government affects its capacity to reduce deficits. Fabrizio and Mody (2006)
claim that coalitions in fragmented governments increase budget deficits. Amorim
Neto and Borsani (2004) verified that the strength of the president’s party, which is
related to a fragmented legislative, has a negative impact on public spending and
consequently has a positive effect on budget balance.
In Cheibub’s study (2006:358-359), he verified that divided governments are not
less disciplined from a fiscal point of view. On the contrary, even if the difference is
small, minority governments tend to have greater control over the deficit than
majority governments.
It should be noted that data on the size of coalition governments in many countries
and for a specific period of time is not easily available. In this case, I will use a
measurement that is related to it and that captures the diffusion of power in the
legislative: the number of effective legislative parties. Independent of the degree
of party or government fragmentation, the number of legislative seats can be an
important factor for the level of spending. This is not attributed so much to the
spending related to the maintenance of the institution. Rather it can be attributed
to the exchange of mutual support among parliamentarians, during log roll
processes, in subjects related to local spending and to the fact that a smaller
constituency has better chances of monitoring and pressuring its representatives.
In the United States, Gilligan and Matsusaka (1995) found a significant effect
when dealing with the size of state legislatures, particularly in upper houses, with
respect to spending and budgets. Thornton and Ulrich (1999) worked with the size
of the constituency of state representatives and found similar results. When
analyzing 38 countries, from 1971 to 1989, Bradbury and Crain (2001) verified that
the size of the lower house is positively related to government spending. Ricciutti
(2004) concluded that the number of legislators had an undefined effect on
government spending.
In this article, I test the same hypothesis, taking into consideration the size of the
legislative of each country analyzed. With the intention of including all the
countries in the sample, I will use only the number of seats in the lower houses
divided by the size of the population.
Some studies were conducted in order to evaluate the manipulation of economic
policies during election years. With regard to government deficits, the literature
presents diverging results: some authors claim that deficits increase (Brender and
Drazen, 2005b; Lewis-Beck, 1986; Amorim Neto and Borsani, 2004); while others
Mireau et al. 2007) verified that the probability of making fiscal adjustments
reduces in election years.
The belief is that macroeconomic conditions help the person in power re-elect
himself, which would, in turn, facilitate the manipulation of the economic
environment before elections. On the other hand, Alesina and Perotti (1995) and
Hallerberg and Marier (2004) claimed that the election period makes no difference.
Many authors used the percentage of senior citizens (above the age of 65) and of
adolescents (below the age of 15) as a control variable in the evaluation of the
determining factors of a country’s fiscal situation. This is because the population,
in these age groups, tends to create pressure for spending on health care, social
security and education, in addition to not directly contributing to the increase in
revenue. In this study, these percentages will be used, both individually and in a
combined manner.
The impact of expending on wars and the consequent lack of planning for such
actions can turn out to be an element of catastrophic proportions with regard to a
country’s economy. In order to test this, I will use a dichotomous variable, which
expresses participation in a war in a determined year and involves the death of
more than one thousand people. The data was obtained from the “Centre for the
Study of Civil War”.
In order to control the effects of economic performance on a fiscal situation, I will
include information on the real growth of the gross national product in my model.
According to some authors, this positively influences the control of deficits, given
the reduction of spending and the increase in tax collection (Cheibub, 2006;
Roubini & Sachs, 1989; Hallerberg & von Hagen, 1999). Interestingly enough,
Talvi and Vegh (2000) verified that the opposite happens in Latin America. The
explanation presented by the authors is that, in difficult times, it is easier for a
government to convince the population of the need to cut spending.
According to Shi and Svensson (2006), the so-called political budget cycle is a
phenomenon characteristic of developing countries that present a higher deficit in
comparison to developed ones. Mukherjee (2003) also claims that the more
developed a country, the lower its deficit. In order to test this hypothesis, I will use
a proxy variable of development, the per capita gross national product and
alternatively the human development index.
It is also important to control the effects of the degree of democracy. Some
authors claim that the so-called political budget cycle is a phenomenon typical of
less democratic countries (Gonzalez, 2002). Brender and Drazen (2005) verified
that it was related to the age of democracy in the country, being more present in
recent democracies. According to the authors, this happens because the citizens
in these countries are inexperienced in terms of elections or do not have the
information with regard to the fiscal manipulation which is being used by the
politicians in power. On the other hand, in developed countries and in established
democracies, the electorate recognizes and punishes such behavior, inhibiting
these practices.
In order to test the effect of democratic aspects, I will use two main references.
The first is the classification elaborated by Freedom House, widely used in Political
Science. The index varies from 1 to 7, with intervals of 0.5. Alternatively, I will use
another variable which states if a country was authoritarian in a given year.
In the model, I will also include variables related to regional characteristics with the
intention of capturing cultural, geographic and historical elements that may be
common among countries of a given region. I will limit myself to the inclusion of
two dichotomous variables regarding the OECD and Latin America. The use of this
last one is important given the fact it is a region with shared experiences which
include: a common history of colonialization, a history of similar military
interventions, a similar insertion in the global economy, and a modeling of
American institutions, which include a presidentialist system, federalism and very
strong upper houses.
Social inequality seems important in defining government spending. This factor
was claimed as being the stimulus behind populist fiscal policies and weak
economic performance. According to Woo (2003: 388-389), income inequality is a
significant determining factor in fiscal deficits: a reduction of 10 points in the Gini
index is associated with a reduction of the deficit in 1,9%.
However, given the lack of reliable and simultaneous inequality indicators for many
countries, it will not be used in this study. The same is true for the variable
unemployment. Despite the fact this element has a significant impact on deficits;
there is no data available for the majority of the countries within the same time
period. In addition, the methodologies used to calculate these statistics vary
greatly, which would complicate comparisons.
Methodological Considerations and Analysis of the Data
I am analyzing the fiscal performance of approximately 100 countries in the period
from 1997 to 2007. Countries from all the continents were included, democratic or
not, when there was data available regarding the dependent variable: the general
balance of government. The data comes from the International Monetary Fund, the
Organization for Economic Co-operation and Development (OECD) and Eurostat,
Statistics on the European Union.
It is important to mention that the data on government finances are complex in
terms of their definition and extension. It is also complex with regard to what they
measure as the collection of data varies among the different countries. The socalled “general government data” includes consolidated budgets of the central
government, of state/regional governments and of local governments, in addition
to the social security system. Loans and re-financing packages from monetary
authorities and state companies are excluded from this budget.
Given the fact the data deals with time-series cross-section methods, they are
subject to contemporary correlation problems, heteroscedasticity and autocorrelation among residuals. In order to solve these problems, Beck and Katz
(1995) propose the use of traditional ordinary least squares (OLS) as a means of
correcting the structure of errors. The two authors showed that, if this is done, the
OLS method produces non-biased and efficient results. The greatest advantage of
this method is that it increases the sample size, allowing one to introduce a greater
number of variables without drastically reducing the degrees of freedom. The
technique is known as the “Panel Corrected Standard Error (PCSE) and became
widely used in comparative politics studies.
Another procedure frequently used by a majority of the authors is the inclusion of
the lagged dependent variable as the explanatory variable (Amorim Neto and
Borsani, 2004; Heller, 1997; Mukherjee, 2003; Tsebelis and Chang, 2004;
Sakamoto, 2001; Cheibub, 2006; Hallerberg and Marier, 2004). In studies on the
fiscal situation of countries, the deficit of the previous year is usually included on
the right side of the equation.
This measure was subject to criticisms in that it tends to greatly usurp the variation
of the dependent variable and therefore tends to dominate the regression and
destroy the effect of other explanatory variables. In Achen’s words (2000: 14):
“. . . as a proxy, picking up some of the effect of unmeasured variables. However,
the autoregressive term does not conduct itself like a decent, well-behaved
proxy. Instead, it is a kleptomaniac, picking up the effect, not only of excluded
variables, but also of the included variables if they are sufficiently trended. As a
result, the impact of the included substantive variables is reduced, sometimes
to insignificance”.5
Plumper et al. (2005) offers a similar criticism, stating that the lagged dependent
variable can produce biased estimates by absorbing variables that are not
theoretically interesting. The authors propose the solution of using Beck and
Katz’s technique, which would eliminate serial correlation by the inclusion of
lagged residuals in place of a lagged dependent variable. This procedure came to
be known as “Prais-Winsten” or “AR1”. In addition, it allows for much more
variance for substantive exogenous variables.
Thus, I will accept the suggestion offered by Plumper et al. and use the same
strategy. In the following tables, I present the results of the models I propose.
Table 1 - Determining Factors of Public Deficit
Bicameral
Presidencialist System
Federative System
Size of the Lower House
Election Year
Dictatorship
GNP per Capita
Population Below the age of 14
Population Above the age of 65
Country at War during the year
Latin America
(1)
Gen Gov Bal
-0.61**
(2.12)
0.82***
(3.59)
0.05
(0.08)
-0.05
(0.75)
-0.41***
(4.10)
1.79***
(4.47)
0.00***
(6.60)
-0.15***
(7.15)
-0.19***
(5.66)
-0.10
(0.30)
0.98***
(4.65)
Presidentialist and Federative
Bicameral and Federative
Bicameral e Presidencialist
Bicameral, Presidencialist, Federative
Political Rights
Human Development Index
Population Below 14 and Above 65
Constant
Observations
Number of id
R-squared
4.85***
(2.62)
1067
99
0.14
(2)
Gen Gov Bal
-1.24***
(10.50)
-0.46***
(2.76)
9.39**
(2.08)
-0.00
(0.00)
-0.36***
(3.77)
1.02***
(18.02)
-10.56**
(2.30)
-9.20**
(2.06)
2.08***
(3.49)
8.61*
(1.91)
0.12
(1.46)
22.96***
(9.35)
-0.19***
(9.47)
-10.44***
(8.30)
1069
99
0.10
In the first model, in addition to variables referring to this study’s institutions of
interest – presidentialism, bicameralism and federalism –, I included additional
information about the political system as well as variables referring to the
economic, social and demographic context of the countries analyzed. In model 2, I
inserted interactive terms among the institutions related to the political institutions.
With the exception of the size of the lower house and the fact a country is at war,
both models reinforce the explanations given by the literature with regard to the
size of government deficits. In general, the data shows that the deficit tends to
increase in two situations: during an election year and with the increase in the
percentage of senior citizens and adolescents in the population. The data also
reveals that the level of development in a country, whether it is according to the
gross national product per capita or to the Human Development Index, tends to
favor the control of fiscal outcomes.
With regard to the democratic aspect, the variables present ambiguous signs: the
level of democracy in a country does not seem to be related to the size of the
fiscal surplus; nevertheless, when one considers if the country is governed by a
dictatorship, the variable presents statistical significance at the level of 1%.
In another model, I included the variable “number of effective parties”, which had
significance at the level of 1% in both models. I did not include this variable in the
table to spare the reader from the excessive presentation of numbers. While this
also reduced the size of the sample to 58 countries, it did not substantially alter the
results.
The most interesting findings are related to the political institutions I am analyzing
more closely. In the first model, in agreement with Cheibub (2006), presidentialism
presented itself as an important factor to explain budget balance in a country. On
the other hand, contrary to what Heller states (1997), bicameral countries do not
tend to present higher fiscal deficits.
In model 2, where interactive terms of these institutions are included, the results
change. The fact that a country is federative now shows relevance while being
presidentialist changes the sign of its effect. This leads us to question whether or
not presidentialism, by itself, creates a positive impact on budget balance; and
whether or not when combined with a federative system the impact becomes
highly negative. However, given the presence of an upper house, the explanation
seems to be elsewhere. Despite the fact that both presidentialism and
bicameralism present negative signs, when combined they create a different
outcome: they now have a positive sign on deficit control with statistical
significance at the level of 1%.
A more precise evaluation, nonetheless, should overcome the dichotomic or
trichotomic classification of the countries. We know that there are presidents and
upper houses with different attributes and responsibilities. It does not seem
coincidental that there is high statistical significance in both of the models with
regard to the variable Latin America, where one finds one of the strongest
presidents and upper houses in the world. In the following table, I include variables
that take into consideration such characteristics. In model 1, I include a variable
referring to the powers of the upper houses; in model 2, I include a variable
referring to the powers of the president; and in model 3, both variables are
included simultaneously.
Table 2 - Determining Factors of Public Deficit
Powers of Upper House
Presidencialist
Federative
Election Year
Political Rights
Human Development Index
Population Below 14 and Above 65
Latin America
(3)
Gen Gov Bal
0.08**
(2.57)
0.04
(0.06)
0.18
(0.48)
-0.30**
(2.34)
0.19*
(1.70)
20.04***
(4.68)
-0.12***
(3.00)
0.67
(0.66)
Presidential Powers
Bicameral
OECD
Constant
Observations
Number of id
R-squared
-14.27***
(5.69)
470
43
0.14
(4)
Gen Gov Bal
(5)
Gen Gov Bal
0.06*
(1.82)
-0.27
(0.41)
-0.44***
(3.74)
0.10
(0.41)
12.85***
(3.87)
-0.06**
(2.20)
-0.50
(1.30)
-0.31*
(1.92)
0.09
(0.38)
22.74***
(6.93)
-0.18***
(4.04)
0.23***
(4.29)
0.26
(0.71)
-0.53*
(1.88)
-10.67**
(2.35)
623
58
0.09
0.03
(0.45)
-0.29
(0.39)
-12.46***
(4.44)
274
25
0.20
z statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%
In the above table, I kept the variables that presented statistical significance and/or
had theoretical relevance for the discussion at hand. In general, the effects of the
control variables do not change considerably. The new factor is present in the
variables related to political institutions.
An important result is related to the positive impact of the powers of the upper
houses on the control of budget deficits. Again, this result here is contrary to those
found in the main study on this topic. Contrary to what Heller states (1997),
bicameralism does not seem to be a relevant factor that explains the budget
deficits of governments. In fact, my data suggests that bicameralism contributes to
the surplus of the government budget. Furthermore, the more symmetric6 the
bicameralism, in other words the stronger the upper house is, the more it
contributes to the increase in this surplus. Given the fact Heller’s study was limited
to developed countries, the author presented a distorted perception with regard to
the roles of these institutions in the control of government budgets. In order to be
fair to the author, it is important to state that at the moment Heller’s study was
conducted, data on developing countries were rare.
Another relevant conclusion we can make concerns presidential powers, which
were shown to be important factors that can explain budget surplus. These results
correspond to those found in Cheibub (2006). Even though my study uses different
measurements for the strength of presidential politics, my findings are similar to
those found by Cheibub.
The presence of a strong president (be it through functions related to the budget or
a more ample spectrum; be it through pure presidentialist systems or mixed
systems) seems to in fact favor the national government balance. Given the fact
that their legitimacy and accountability is independent of the legislative, the
presidents seem to have an interest in budget balance.
Conclusion
In the last few decades, political science has increasingly sought to contribute to a
better understanding of the economic performance of countries. Increasingly so,
Political Science has started occupying a space that had been exclusively
designated to studies in the area of Economics. It has done so by calling attention
to aspects of social life that had been excluded from such studies. Nevertheless, in
order to perceive the real effects of such institutions, it is necessary to improve
and deepen the knowledge about such aspects.
In this article, I sought to contribute to studies in this area in this very sense. In
other words, I introduced a discussion about the effects of fundamental political
institutions on budget balances in respective countries. An innovating aspect of
this study, in relation to previous studies, is that it verified not only the individual
effects of the variables but also their combined effects. The results show that the
interaction among presidentialism, federalism and bicameralism present very
different results particularly when such variables are considered in an isolated
manner.
Another strategy adopted was the use of indices that attempt to better identify
such institutions. In general, comparative studies have relied on dichotomous
measurements to classify such institutions, which is not always a sufficient means
of understanding the differences among them. The results show that the impacts
of presidentialism and especially of bicameralism substantially change when one
closely considers their respective powers. These findings call attention to the
direction that Political Science should take, particularly with regard to the
elaboration of new indices that, in turn, present a concern with the validity and
reliability of such new indices. The mere sum of the number of veto players is no
longer sufficient to grasp the complexity of the topic; it is necessary to know who
these veto players are.
The presidentialist system has been the object of numerous discussions in the last
decades, especially pertaining to its interaction with parties and the lower house.
Bicameralism and upper houses are studied on a much smaller scale. Research
on the relation between these two institutions is practically nonexistent. A careful
look at Latin America shows how the environment in the region was appropriate
not only for the establishment of these institutions but also for their consolidation.
Interestingly enough, it should be noted that the institutions in Latin America were
stronger than those they had been modeled after, since the presidency and senate
are considered to be an example of one of the strongest in the world. In the
original proposal of the founding fathers of North America, this was one of the
means of making the branches of power capable of mutual control. This would, in
turn, maintain equilibrium and stability. Analyzing the combined performance of
these institutions more than 200 years later and their adaption in Latin American
countries is a challenge that Political Science must come to face.
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1
According to Tsebelis (1995), a veto player is an individual or collective actor whose
agreement is necessary for changing the status quo.
2
The following are the characteristics considered by Siaroff (2003): 1) the president is
popularly elected; 2) there are concurrent elections and synchronized terms for the
president and assembly; 3) the president has discretionary powers to appoint key
individuals such as the prime minister, other cabinet ministers, high court judges, senior
military figures and/or central bankers; 4) the president has the ability to chair formal
cabinet meetings and thus engage in agenda setting; 5) the president has the power to
veto legislation or has the right to return legislation; 6) the president has broad
emergency or decree powers for national disorder and/or economic matters; 7) the
president has a central role in foreign policy; 8) president has a central role in forming the
government; 9) the president has the power to dissolve the legislature at will.
3
This word comes from the Greek God “Proteus”, an old and prophetic man who lived in
the see SEA and constantly changed his form. He also had the capacity to predict the
future.
4
Some exception include: Elgie and McMenamin (2008); Cheibub (2006); Mukherjee
(2003).
5
In fact, the studies that use the lagged dependent variable presented very high
significance in terms of explaining the deficit. (Amorim Neto and Borsani, 2004;
Sakamoto, 2001; Mukherjee, 2003; Shi and Svensson, 2006; Kittel and Winner, 2002).
6
According to Lijphart (1997), a “symmetric bicameralism” is that in the two houses have
equal or almost equal powers..