Political Constraints and Discretionary Fiscal Policy during the Recent Economic Crisis
Political Constraints and Discretionary Fiscal Policy during the Recent Economic Crisis

Summary/Abstract: Political institutions have been found to be the source of many policy differences between countries. Elaborating on earlier work in this tradition, this article will suggest an association between institutional veto power creating political constraints, and the discretionary fiscal policy reaction of governments during the economic crisis of 2008. It will be argued that the institutional configuration may have played a role in shaping the different discretionary fiscal policies adopted by governments. A limited empirical exercise indeed suggests that greater political constraints are convincingly associated with a lower fiscal package in a cross section of 46 countries with relevant country level controls.

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