Abstract

In recent years the Political Economy literature has focused on the question whether the presence of coalition governments favours excessive public spending and fiscal deficits. Some empirical contributions have already answered affirmatively; here we consider whether it is possible to do better by looking not at the type of government in charge (single party vs. coalition), but at its nature. We distinguish between homogeneous and non-homogeneous governments: the latter are held together only by extra-economic motives, while in the former there is also a common view on economic policy, as is the case not just with single party, but also with a number of coalition governments. By using cluster analysis on data regarding 11 OECD countries from 1962 to 1992 we come to the conclusion that classifying governments by nature makes more sense, as it isolates those coalitions where a strategic interaction over fiscal policy takes place between partners. Ideological coalitions have a greater probability to be associated with strong positive fiscal impulses, but also with strong negative ones. We argue this is not in contrast with the conclusions of the Alesina and Drazen model (1991).