Budget deficits and coalition governments

This paper shows that compromise between different ideological motivations within multiparty governments may result in a bias toward running budget de ficits even if all parties in the coalition prefer balanced budgets. The de ficit bias increases with the degree of "polarization'' of the ideological motivations and generally decreases with the degree of concentration of pow er within the government. Although the analysis is conducted assuming a pro portional representation electoral system, the results will also apply to m ajoritarian systems if the winning party comprises ideologically different constituencies. The relationship between budget deficits and multiparty gov ernments is investigated using data from a sample of eight European Union c ountries for the period 1971-1990. Analysis on pooled data is partly in lin e with the theory. Time series within country analysis is less favorable: w e find clear support to the theory only in the case of Italy.