Incumbency and Expectations of Fiscal Rule Compliance: Evidence from Surveys of German Policy Makers

36 Pages Posted: 3 Nov 2020 Last revised: 18 Mar 2021

See all articles by Friedrich Heinemann

Friedrich Heinemann

ZEW – Leibniz Centre for European Economic Research; University of Heidelberg - Alfred Weber Institute for Economics

Eckhard Janeba

University of Mannheim - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Maximilian Todtenhaupt

Norwegian School of Economics (NHH)

Date Written: 2020

Abstract

We analyze politicians’ expectations about future compliance with a fiscal rule, and in particular the dependence of the expectations on their role in parliament (opposition vs. incumbent government coalition). We study this in the context of the German debt brake, which became a constitutional provision in 2009 but is binding for the sub-national states from 2020 onwards only. Via a unique survey, we analyze compliance expectations of parliamentarians of all 16 German state parliaments. A strong incumbency effect is identi-fied from parlamentarians who move in and out of government, showing that politicians from the governing coalition are more optimistic than those from the opposition. A nega-tive fiscal shock has little effects on the former, but a strongly negative one on the latter. We offer a theoretical model that is consistent with an increasing incumbency effect over time, as the result of wishful thinking by politicians concerning their reelection chances and a dynamic reputation effect for policymakers when compliance with the fiscal rule is achieved.

Keywords: Fiscal rules, incumbency, fiscal policy, political economy

JEL Classification: H63, H74

Suggested Citation

Heinemann, Friedrich and Janeba, Eckhard and Todtenhaupt, Maximilian, Incumbency and Expectations of Fiscal Rule Compliance: Evidence from Surveys of German Policy Makers (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-057, Available at SSRN: https://ssrn.com/abstract=3724200 or http://dx.doi.org/10.2139/ssrn.3724200

Friedrich Heinemann (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

HOME PAGE: http://www.zew.de

University of Heidelberg - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

Eckhard Janeba

University of Mannheim - Department of Economics ( email )

L7, 3-5
D-68131 Mannheim
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Maximilian Todtenhaupt

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://https://sites.google.com/view/todtenhaupt

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