Stephan Haggard 421Two hypotheses result from this line of inquiry. First, a high level of political
instability, measured by frequent changes of government, is likely to generate
higher fiscal deficits, since politicians will have particularly short time horizons.
Second, a polarized political system in which the objectives of the competing
parties are highly incompatible will generate higher fiscal deficits than those
systems in which the objectives of the competing parties overlap and are less
zero-sum in nature.
BRINGING INSTITUTIONS BACK IN
Economists who have branched into political economy tend to think of the polity
in terms of economic cleavages. Workers have different interests than capitalists;
holders of financial assets have different inflation preferences than debtors; urban
consumers have different preferences regarding agricultural prices than rural
producers. As the partisan-conflict model suggests, economists assume a close
“mapping” between economic cleavages and political organization, and see the
state and politicians as relatively passive registers of social demands. With this
approach, every policy that has a distributional consequence could be explained
on the grounds that it favored some group. The more demanding task is to explain
why some polities are riddled with revenue seeking, while others have developed
mechanisms of fiscal control.
Answering such questions requires greater attention to organizational and
institutional factors. First, different types of economic activity may be more or
less amenable to political organization and collective action. The agricultural sector
may loom large in the economy, but peasants are difficult to organize and rural
influence on policy can easily be offset by smaller, but better organized urban
forces. It is therefore important to have information not only on economic cleavages,
which provides good clues about policy preferences, but also on which social
groups are in fact capable of effective organization.
Second, party organization can aggregate interests in different ways. In some
polities, the party system reinforces societal and economic cleavages and conflicts,
for example, pitting populist or labor parties against conservative and middle-
class parties, or urban-based parties against rural-based ones. In other countries,
broad, catchall parties cut across class or economic divisions and tend to mute
them. These organizational differences can have profound influence on the political
appeals parties make, on the demands on public finance, and consequently on
the conduct of macroeconomic policy. Macroeconomic stability is more likely
in two-party systems with broad, catchall parties than in those that pit class-
based parties against one another or in multiparty systems that foster more
ideological parties.
It is not enough to know how groups are organized for political action; equally,
if not more, important is the question of how social demands are represented in
the decision-making process. The new political economy has focused its attention
on the advanced industrial states, and thus assumed the existence of political
processes such as general elections. Elections are not relevant for policy making