Shomron Center for Economic Policy Research

In Search for an efficient Institutions

Political factors behind Surges and Cuts of Government spending


Our new paper just uploaded at SSRN: “Political Factors of the Cuts and Surges in Government Spending: The Effects on Old Market Democracies and Post-Communist Countries“.

Based on the comparative analysis of the experiences of both old and new market democracies, this paper emphasizes key factors that have triggered changes in government spending routine, measured in terms of each nation’s gross domestic product (GDP). By analyzing the history of the last several decades, the authors of this paper outline the factors (such as territorial separatism, the domination of the left- and right-wing parties or the long one-party domination) that affect governments’ abilities to balance the budget. Much attention is paid to the phenomenon of universal suffrage, which led to the contemporary left-wing parties and strong interest groups within the bureaucracy.
This paper reaches the following conclusions: First, most political factors are time sensitive—they only last for so long—and they differ from country to country; however, those factors that depend on universal suffrage consistent throughout all periods and countries. Second, a severe crisis usually opens the window of opportunity that is necessary to cut public expenditure, while the favorable economic conditions stimulate spikes in government spending. Third, the most effective way to curb the instability of public finance is to form a political coalition of nationalists and free market supporters.


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