James E. Alt

Divided Government, Fiscal Institutions, and Budget Deficits: Evidence from the States

Does partisan control of American state government have systematic effects on state spending and taxing levels? Does divided control affect the governments ability to make hard decisions? Do institutional rules like legal deficit carryover restrictions matter? Using a formal model of fiscal policy to guide empirical analysis of data covering the American states from 1968 to 1987, we conclude that (1) aggregate state budget totals are driven by different factors under Democrats and Republicans, the net result being that Democrats target spending (and taxes) to higher shares of state-level personal income; (2) divided government is less able to react to revenue shocks that lead to budget deficits, particularly where different parties control each chamber of the legislature; and (3) unified party governments with restricted ability to carry deficits into the next fiscal year (outside the South) have sharper reactions to negative revenue shocks than those without restrictions.

Perspectives on Positive Political Economy

This volume serves as an introduction to the field of positive political economy and the economic and political processes with which it is concerned. This new research tradition is distinct from both normative and historical approaches to political economy. Grounded in the rational-actor methodology of microeconomics, positive political economy is the study of rational decisions in a context of political and economic institutions. More analytical than traditional approaches, it is concerned with the derivation of principles and propositions against which real-world experience may be compared. Its focus is on empirical regularities, and its goal is theoretical explanation. The field has focused on three main areas of research: models of collective action, constraints on competitive market processes, and the analysis of transaction costs. Developments in all of these areas are covered in the book. The first part of the volume surveys the field, while the second part displays positive political economy at work, examining a variety of subjects. The final part contains essays by leading political economists on the theoretical foundations of the field.

The Political Economy of International Trade Enduring Puzzles and an Agenda for Inquiry

A similar set of concepts has been central to the literatures on the formation of trade policy coalitions and the “new economics of institutions”: the political and economic consequences of the degree to which assets are specific to a particular economic activity. In this survey, the authors take the necessary first step of summarizing the main findings of these two literatures and then suggest ways in which the issue might be joined. In addition to providing a more coherent understanding of the findings of these two literatures and some new directions for them, the authors show that many puzzles remain in the field of trade politics—puzzles for which there are no appealing answers or, where there are answers, no strong evidence in support of them. This essay, then, in addition to being a theoretical review of the literature, puts forward an agenda for future study of international trade politics.

A Unified Model of Cabinet Dissolution in Parliamentary Democracies

The literature on cabinet duration is split between two apparently irreconcilable positions. The attributes theorists seek to explain cabinet duration as a fixed function of measured explanatory variables, while the events process theorists model cabinet durations as a product of purely stochastic processes. In this paper we build a unified statistical model that combines the insights of these previously distinct approaches. We also generalize this unified model, and all previous models, by including (1) a stochastic component that takes into account the censoring that occurs as a result of governments lasting to the vicinity of the maximum constitutional interelection period, (2) a systematic component that precludes the possibility of negative duration predictions, and (3) a much more objective and parsimonious list of explanatory variables, the explanatory power of which would not be improved by including a list of indicator variables for individual countries.

Fiscal Transparency, Political Parties, and Debt in OECD Countries

Many believe and argue that fiscal, or budgetary, transparency has large, positive effects on fiscal performance. However, the evidence linking transparency and fiscal policy outcomes is less compelling. To analyze the effects of fiscal transparency on public debt accumulation, we present a career-concerns model with political parties. This allows us to integrate as implications of a single model three hitherto-separate results in the literature on deficit and debt accumulation: that transparency decreases debt accumulation (at least by reducing an electoral cycle in deficits), that right-wing governments (at least for strategic reasons) tend to have higher deficits than left-wing governments, and that increasing political polarization increases debt accumulation. To test the predictions of the model, we construct a replicable index of fiscal transparency on 19-country OECD data. Simultaneous estimates of debt and transparency strongly confirm that a higher degree of fiscal transparency is associated with lower public debt and deficits, independent of controls for explanatory variables from other approaches.

Fiscal Policy Outcomes and Electoral Accountability in American States

Clear fiscal policy effects appear in American state gubernatorial and legislative elections between 1968 and 1992, independent of the effects of incumbency, coattails, term limits, and macroeconomic conditions. The results show that accountability is generally stronger following a period of unified party control than under divided government. Voter reactions to taxes and spending relative to the state economy are conditional on expectations, which differ for each party. Net of these expectations, Republican gubernatorial candidates lose votes if their party is responsible for unanticipated increases in the size of the state budget; Democrats do not and, indeed, may be rewarded for small increases. Independent of this, the incumbent governors party is punished in legislative elections for failing to maintain fiscal balance. Taken together, these results show how electoral accountability for fiscal policy outcomes is strong but highly contingent on a complex configuration of party labels, partisan control, expectations, and institutions.

A Dynamic Model of State Budget Outcomes Under Divided Partisan Government

This article analyzes the politics of fiscal adjustment in a bicameral system when parties prefer different scales of taxes and public spending. Data from 33 non-southern American states for the years 1952-1995 show that Democrats nearly everywhere target a larger share of state incomes for the public budget than Republicans, though exact party positions vary from state to state. Republicans react more strongly to budget surpluses by reducing revenues than do Democrats. Unified governments adjust faster than divided ones. A party having unified control can shift fiscal scale one-quarter to one-third of the way toward its ideal share of income within two years. When each party controls a different branch of government, the legislative party shifts fiscal scale in its desired direction; but when each party controls one legislative chamber, there is a smaller shift in the direction preferred by the governors party.

Partisan Dealignment in Britain 1964–1974

Britain enjoys a textbook reputation as the historic home and model representative of a stable two-party system. From the factors most frequently cited by way of explanation – the electoral system, the absence of cross-cutting social cleavages – it is implied that this uncommon state of affairs is a natural and permanent part of British politics. This reputation is, in fact, somewhat exaggerated. At no time have MPs or parliamentary candidates in Britain been confined to two parties only (in contrast to the United States); and for most of the period since the introduction of the majority male franchise and the beginning of mass parties in 1884 the configuration of party forces in the Commons would be best described as multi-party (1884–1922), three-party (1922–31), or dominant one-party (1931–45). Britains experience of a stable two-party politics has therefore been both recent and relatively short-lived; it is only since the Second World War that two parties – Conservative and Labour – have alternated in exclusive incumbency of government office on the basis of an evenly balanced duopoly of electoral support and parliamentary seats.

The Political Economy of Institutions and Corruption in American States

Theoretically, this paper draws on political agency theory to formulate hypotheses. Empirically, it shows that political institutions have a role in explaining the prevalence of political corruption in American states. In the states, a set of democracies where the rule of law is relatively well established and the confounding effects of differing electoral systems and regimes are absent, institutional variables relating to the openness of the political system inhibit corruption. That is, other things equal, the extent to which aspiring politicians can enter and gain financial backing, and to which voters can focus their votes on policies and thereby hold incumbent politicians accountable for policy outcomes and find substitutes for them if dissatisfied with those outcomes, reduce corruption as a general problem of agency. These institutional effects are estimated in the presence of controls for variables representing other approaches.

REPUTATION AND HEGEMONIC STABILITY: A GAME-THEORETIC ANALYSIS

We develop and explicate a game-theoretic model in which repeated play, incomplete information, and reputation are major elements. A significant advance of this model is the way it represents cooperation under incomplete information among rational actors of different sizes. The model is used to formalize certain aspects of the “theory of hegemonic stability.” It shows that the “dilemma” or “limits” of hegemonic stability look like natural attributes of games where reputation is involved, unifying both “benevolent” and “coercive” strands of hegemony theory. An example, drawn from recent developments in the Organization of Petroleum-exporting Countries, shows how our model of reputation guides the study of hegemonic regime construction. We conclude by comparing the nature of cooperative behavior under conditions of complete and incomplete information.