Fiscal Policy and Fractionalization

Seminar paper from the year 2004 in the subject Economics - Monetary theory and policy, grade: 2.0 (B), Free University of Berlin (Economics), course: Seminar, language: English, abstract: Political fragmentation is regularly considered to be a relevant factoraffecting the outcomes of fiscal policy. It is assumed that a fragmentedfiscal policy process leads to higher expenditures and subsequently in ahigher deficit. But “hard evidence” in support of this hypothesis is rare, andconclusions can only be drawn very carefully. The present paper gives anoverview of the existing literature on the role of (size) fragmentation and itseffects on fiscal policy outcomes. The main focus is on the work contributedby Yianos Kontopoulos and Roberto Perotti, who used a panel of 20 OECDcountries over 1960-1995 for their analysis of government fragmentation.