Coalition Governments and Fiscal Policy in the Netherlands

Abstract

Reininga analyses the features of the fiscal policy regime adopted in the Netherlands since the mid-90s and places them in the historical perspective of Dutch fiscal policy after 1945. He points out that at an earlier stage it was the urgency of consolidating public finances that reduced disagreement among political parties in the Netherlands over priorities in public finance. This enabled Governments in the 80s to embark on tighter fiscal policies than their predecessors, aiming at a considerable reduction in the budget deficit. Concerning more recent developments, Reininga suggests that the increased significance of coalition agreements as a commitment device for participating political parties may have facilitated the formation of coalition governments with programmes targeted at deficit reduction. Consequently, when public finances appeared to be under control again, the Dutch government was able to introduce a trend-based budgetary policy, featuring medium-term ceilings for government expenditures, a transparent and orderly budgetary process, automatic stabilisation with regard to the business cycle and - to some extent - tax smoothing on the revenue side.