Can Democracy Harm Public Finance? Some Evidences from Europe

Abstract

James Buchanan and Richard Wagner in their famous book “Democracy in Deficit” note that democracy has not enough fiscal discipline because the citizens’ representatives are chosen in the election and they take the budgetary decisions seeking the re-election. Their theory of public choice may suggest the existence of a positive relationship between the democracy’s quality and the public debt level reflecting the long-lasting consequences of the budgetary decisions of policy-makers. Thus, we formulate the following research question: Is democratic system harmful for public finance? To operationalize the democratic system, we use five democracy indices (i.e., electoral, liberal, participatory, deliberative, and egalitarian), and the public debt to operationalize the threat for public finance. Conclusions put in a new light the theory, as first the study confirmed that there are statistically significant relationships between democracy’s quality and public debt and, however not in case of every democracy index and every European country.