Does the Nationalization of Party Systems Affect the Composition of Public Spending?

Abstract

Do political institutions shape the structure of public spending? Based on a sample of elections in eighteen Western European countries over the period 1970-1998, this paper shows that governments' margin of maneuverability to design and implement fiscal policies depends on the level of party linkage or the nationalization of party systems, defined as the extent to which parties are uniformly successful in winning votes across districts. The mechanism behind this argument is that in weakly nationalized countries there are additional transaction costs to change the structure of budgets as a consequence of the survival of local parties and interests. Therefore, the composition of public spending is more rigid here than in highly nationalized countries.

Keywords: Electoral system, Fiscal policy, Nationalization, Party system, Transaction costs