Government Formation, Budget Negotiations and Re-election Uncertainty: The Cases of Minority and Majority Coalition Governments

This paper presents an analytical approach, which connects the form of a government and the level of expenditures, which it runs. It explains the findings on spending patterns of minority and majority coalition governments reported by the empirical literature. A government formation game is followed by budget negotiations in the cabinet and the parliament. The demand of a party in the parliament reflects her re-election prospects. In the absence of political risk, majority coalition and minority governments are predicted not to run different expenditure policies. With a rise in re-election uncertainty, a pre-existing coalition government faces risk of termination, in which case the probability that it is followed by a minority government with higher expenditures increases.