Fiscal Constitutions: An Empirical Approach

The overarching question of this dissertation is: “why does the public debt grow, and why are fiscal (debt) crises repetitive and so widespread?” A special focus in answering this question is given to a fiscal constitution, which contains a country-specific set of laws, rules and regulations, and guides decision making in the area of fiscal policy. By shaping incentives and limiting arbitrariness, the fiscal constitution determines the course of fiscal policy and fiscal outcomes in the long term. This dissertation does not give, however, an exhaustive response to the overarching question. Instead it asks much narrower questions, which are selected after reviewing and identifying the main weaknesses and gaps in the modern literature on fiscal constitutions.

What Ended the Great Depression? Re-Evaluating the Role of Fiscal Policy

Conventional wisdom contends that fiscal policy was of secondary importance for the economic recovery in the 1930s. The recovery is then connected to monetary policy that allowed non-sterilised gold inflows to increase the money supply. Often this is shown by measuring the fiscal multipliers and demonstrating that they were relatively small. This paper shows that problems with the conventional measures of fiscal multipliers in the 1930s may have created an incorrect consensus on the irrelevance of fiscal policy. The rehabilitation of fiscal policy is seen as a necessary step in the reinterpretation of the positive role of New Deal policies for the recovery.

Choosing the Path of Austerity: How Policy Coalitions Shape Welfare-policy Choices in Periods of Fiscal Consolidation

In general, fiscal adjustments are associated with significant reductions in social spending. Hence, the welfare state is not spared from austerity. Because the welfare state is still central to party competition, this is electorally risky. The paper addresses the following questions: Do left parties differ from their centrist and rightist competitors in the design of austerity measures? And does government type has an impact on the extent to which austerity policies rely on social spending cuts? By comparing 17 OECD countries between 1982 and 2009 we show that if governments embark on a path to austerity, their ideology does not have a significant effect on the magnitude of welfare state retrenchment. However, if major opposition parties and interest groups rally against social spending cuts, a broad pro-reform coalition is a crucial precondition for large fiscal consolidation programs to rely on substantial cuts to social security.