Strong politicians, small deficits: evidence from Norwegian local governments

This paper provides an empirical analysis of the relationship between budget deficits and political institutions using a large panel data set for Norwegian local governments. Political strength is seen as an advantage in order to overcome the common-pool problem associated with competing interest groups representing different service sectors. This hypothesis is supported by the finding that party fragmentation has a very robust effect on the deficit. A complementary analysis using survey data on politicians' spending preferences indicates that party fragmentation does not capture the underlying common-pool problem, at least not when community-specific effects are included in the deficit equation.