Political Systems and Fiscal Policy

Introduction

The relationship between political systems and fiscal policy is coherent since the government’s three primary functions are economical. The government’s three main tasks include Allocation, redistribution, and stabilization, which require consistent financial supply from the public. Fiscal policy dictates the relationship between how the government spends its revenue and how it collects the taxes from the people in an agreeable manner. Therefore, discussion on the political system and fiscal policy has always centered around budget debates in federal state and local governments as among the avenues for interaction between the two concepts in government. These discussions never face little attention since they impact even the local family who can be affected by a reduction in the gas tax. This essay examines various other ways in which political systems affect fiscal policy. In essence, the article will discuss how different political structures impact the overall monetary policy.

One of the most significant political systems that impact the overall fiscal economy is elections. Election years causes GDP fiscal deficits of up to one percent. Elections cause pressure on monetary policy and are a very significant avenue of interaction between political systems and fiscal policy. Governments have to put pressure on several aspects of their budgets for the election cost. Election years also affect monetary policy by impacting the government’s budget composition. In essence, public consumption generally increases as the elections approach and public investments also usually decline during such periods. Another significant way in which elections affect fiscal policy is through the growth in public wage bills every election year. Elections also impact the overall monetary policy by influencing the growth rate of public investment. This is evident through the trends in public investments before and after the election. In the United States, for example, public investments grow significantly and are at their peak at about 28 months before elections. However, they start to decline considerably towards the election year, showing how much elections impact fiscal policy.

Another significant political system that impact fiscal policy is political divisions. Political deviations arise from significant variations between promised adjustment in budgetary deficits and the actual outcomes of the promises. Political divisions, as a political system, impacts fiscal policy by causing significant debt accumulations and lower rates of debt reduction, which creates political imbalances. The impacts of political divisions are also visible in the way cabinets are constructed. Big cabinets lead to much more accumulation of public debt, and this is a major cause of political divisions. Another political system that impact fiscal policy is known as political ideologies. Left-wing and right-wing political ideologies impact fiscal policies differently. For example, left-wing political ideologic governments are associated with more significant public investment booms. However, budgetary rules and institutions help in regulating the impact of political ideologies and overall political systems advising the government on how to improve fiscal performance and balance the relationship between public funding and government expenditure.

The relationship between political systems is core to the accusation that governments often manipulate fiscal policy to win elections. Such allegations are based on factors like the reduction of taxes by governments just before elections and the increase in government spending. Many scholars believe that such trends are associated with elections and are government plans aimed at helping them to win elections. However, according to Alberto Alesina (2015), such patterns are not always red flags and do not necessarily mean that the government manipulates fiscal policy to win an election (Alesina, 2015). Instead, they are crucial indicators of more significant factors that reflect the interaction between political systems and fiscal policy.

While central banks serve the purpose of controlling a nation’s monetary policy, the fiscal policy serves the purpose of helping governments impact their nations’ economies. In essence, fiscal policy regulates government spending, which is vital to how governments influence economic conditions like demand for goods and services, inflation rates, economic growth, and employment. These are among the various areas where the core to political systems’ relationships with fiscal policy are inhibited.

Conclusion

The concepts discussed above prove the level off interaction between political systems and fiscal policy. They demonstrate the sentiments at the beginning of this essay that the relationship between political systems and fiscal policy is coherent. The two concepts interact at various levels and are crucial to each other in the government’s role in controlling a country’s economy. This article has described the different levels of interaction between political systems and fiscal policy. This article aims to help the reader understand how specific political system structures within the government impacts budgetary policy. This essay has, therefore, discussed different political systems such as elections, political divisions, and ideologies as some of the specific political systems structures that impact fiscal policy. Additionally, the article has also explored the overall impacts of political systems on the fiscal policy concerning how that overall impact is different from thee roles other institutions that impact monetary policy like central banks.

References

Alesina, A. (2015). Do governments manipulate fiscal policy to win elections? World Economic Forum Journal, https://www.weforum.org/agenda/authors/albertoalesina.

Gaspar, V., Gupta, M. S., & Mulas-Granados, M. C. (2017). Fiscal politics. International Monetary Fund.