Abstract

Who decides policy in a coalition government? The question is important to political scientists and presumably to voters. It plays a central role in a literature on government accountability and economic voting. Empirical analysis of policy-making, however, faces considerable challenges. This paper circumvents those challenges and infers macro-economic policy using the actual record of the macro-economy in a specification based on Alesina’s rational partisan theory (Alesina, 1987). The testing strategy relies upon the variation we see in party control of different cabinet ministries under coalition government. According to rational partisan theory, partisan policy preferences will only have real effects on the economy after a surprise change in the macro-economic policy-maker, as after an election. By tabulating changes in party control of different ministerial positions with changes in the real economy, therefore, we can infer which cabinet positions actually confer policy rights and are decisive in macro-economic policy. In particular, we can test whether the Minister of Finance has full power over macro-economic policy, as posited by Laver and Shepsle’s theory of ministerial discretion (1996). The analysis is implemented by extending Alesina’s model of rational partisan theory using a set of interaction terms that isolate the effect of party change in different positions and is estimated using data on government composition and ministerial appointments from Woldendorp, Keman and Budge (2000) and macro-economic data from the IMF and OECD.