Thomas Braendle’s research while affiliated with Organisation for Economic Co-operation and Development (OECD) and other places

Fiscal rules are argued to be important for sound and sustainable fiscal policies and have been increasingly adopted over the last 20 years. As increased fiscal pressure and fiscal risks urge countries to address the public debt legacy left by recent economic crises, fiscal rules come under greater scrutiny. To inform the debate on fiscal frameworks, this paper presents a comprehensive survey of the empirical literature on the impact of fiscal rules. In particular, we discuss the recent empirical literature that investigates the impact of fiscal rules on various elements related to fiscal performance and beyond. Our survey finds that fiscal rules are associated with improved fiscal performance as approximated by improved budget balances, lower debt and lower public spending volatility. Furthermore, empirical research finds that fiscal rules are related to more accurate budget forecasts and improved sovereign bond ratings. From a macroeconomic perspective, well-designed fiscal rules do not principally undermine public investment, do not increase pro-cyclicality in fiscal policy-making and can support fiscal consolidations. These results, however, also depend on the broader economic and institutional context. Moreover, there is emerging literature that links fiscal rules to macroeconomic and broader political outcomes, such as income inequality and political polarisation. We discuss methodological challenges related to identification and point to avenues for future research.

The ongoing coronavirus pandemic crisis as well as demographic and climate change pose major challenges for public finances. This article deals with the implications of demographic trends in Switzerland, i.e. the progressive ageing of the population and its impact on the country’s public finances in the long run. As the analysis shows, the brunt of the demographic burden is borne by the old-age pension scheme, health and long-term care. This article also addresses the financial ramifications of the COVID-19 crisis and shows the need for economic policy action over the longer term to ensure the sustainability of public finances in Switzerland. Furthermore, a qualitative assessment of climate change is included, as it constitutes an additional major long-term challenge for public finances.

Growing healthcare expenditure is a major concern for policy makers and calls for effective cost containment measures. For the decentralized Swiss healthcare system, ranking second among OECD countries in healthcare spending, a group of experts has proposed budgetary targets as key measure. In order to substantiate this proposal, we review the literature and analyse experiences with budgetary targets in comparable social health insurance systems, such as Germany and the Netherlands. Budgetary targets raise the cost responsibility and prompt providers to give greater weight to cost-benefit considerations. Our analysis suggests that the involvement of all principal healthcare players and clear decision-making and negotiating structures are key to successful implementation. Risks of rationing, lower quality incentives or conservation of structures have to be countered with taking into account age-related morbidity and medical progress when setting the budgetary targets. Accompanying measures such as incentive-compatible remuneration schemes and quality monitoring are of paramount importance.

Growing healthcare expenditure is of major concern for the sustainability of public finances. In order to better explore the fiscal sustainability challenge and to inform the debate, we draw up a new set of healthcare expenditure projections for the particularly interesting case of Switzerland. According to our projections up to 2045, population ageing exerts a growing pressure on public budgets and mandatory healthcare insurance. However, healthcare expenditure is not only driven by demographic change but also by non-demographic drivers such as the increasing national income, medical advances and Baumol's cost disease. We find that long-term care is more severely affected than healthcare excluding long-term care. This finding implies that population ageing affects public finances to a greater extent than the mandatory healthcare insurance. Our sensitivity analysis suggests that the strongest cost pressure comes from alternative assumptions about the future state of health and Baumol's cost disease. Accordingly, measures aiming at prevention and efficiency would help most to ease the pressure on public finances and mandatory healthcare insurance.

Governance of monetary and fiscal policy have followed diverging paths. Since the late 1980s monetary policy has been delegated to independent central banks. By contrast, fiscal stabilization remained in political hands but has progressively been constrained by rules; the Stability and Growth Pact in the EU is a prominent case in point. While delegation and independence eliminated the inflation bias, fiscal policy still suffers from a deficit bias as enforcement of rules remains difficult. A logical extension of all attempts to progressively tie the hands of politics would be to carve out the stabilization function from the broader field of fiscal policy and to delegate it to national independent fiscal councils. Apart from addressing the political economy behind the deficit bias, such a step would facilitate a better co-ordination of macroeconomic policies in Economic and Monetary Union.

A better understanding of the determinants of public health care expenditures is key to designing effective health policies. We integrate demand and supply-side determinants and factors from political economy into an empirical analysis of the highly decentralized Swiss health care system and control for major health care finance reforms. We compile a novel data set of the cantonal health care expenditure in Switzerland, which currently amounts to about one fifth of total health care expenditure. We analyze the period 1970–2012 and use dynamic panel estimation methods. We find that per capita income, the unemployment rate and the share of foreigners are positively related to public health care expenditure growth. With regard to political economy aspects, public health care expenditures increase with the share of women elected to parliament. However, institutional restrictions for politicians, such as fiscal rules, do not appear to limit public health care expenditure growth.

We study the harmonization of the base pay for the Members of the European Parliament (MEPs). Prior to this reform, implemented in 2009, base pay was aligned with that of national parliamentarians, causing large differences in pay between the MEPs representing 27 member states. Based on detailed information on individual MEPs between 2004 and 2011, we find that the reform, which introduced an exceptional base pay increase of 200 % per national delegation on average, has a positive incentive effect on in-office effort proxied by the number of speeches, written declarations and reports drafted. However, more generous remuneration is associated with higher rates of absenteeism. With respect to political selection, we find that higher pay also raises reelection rates. The composition of the pool of MEPs in terms of (ex-ante) quality approximated by formal education, previous political experience in elected office and occupational background is, however, unaffected. If we restrict our attention to newly elected MEPs, a salary increase is related to fewer MEPs with previous political experience at the highest national level.

Political economy has primarily paid attention to the principal-agent relationship between citizens and politicians and the role of competition and institutions in disciplining political agents. However, as the electoral control of politicians and the credibility of policy commitments are limited, this perspective needs to be complemented with an economics of political selection that takes into account the heterogeneity in the quality of those elected to political office. We review the emerging literature, which investigates the institutional determinants of political selection. We discuss pay in politics, parties, their candidate selection procedures and electoral rules, institutions enhancing transparency in politics, and institutions which govern dual office holding in different branches of government. We argue that further comparative analyses are essential in order to gain an improved understanding of the impact that institutions have on political outcomes, not only via the channel of accountability, but also via the channel of selection.

Countries differ substantially in how they deal with politicians that come from the public sector. Most constitutions include incompatibility and ineligibility rules due to concerns about conflicts of interest and the politicization of the public service. We study how these rules affect the attractiveness of parliamentary mandates for public servants and thus the selection into politics. We compile a novel dataset that captures the fraction of public servants in 71 national legislatures as well as the respective (in)compatibility regimes. On average, there are 7 percentage points fewer public servants in parliaments where a strict regime is in force. Supplementary evidence shows that the fraction of public servants in parliament is positively correlated with government consumption as well as the absence of corruption.

This paper addresses the personal linkages between the public service and the legislature that emerge because public servants pursue a political mandate. There are concerns that the representation of public servants in parliaments generates a conflict of interest. We present a cost-benefit calculus and analyze specific legal provisions for the German Laender to understand the selection of public servants into parliaments. We find that a legal incompatibility of a position in the public service and a political mandate decreases and a compensation for having to hold one’s office in abeyance increases the fraction of public servants in Laender parliaments. Political selection-Parliamentary election-Public servants-IncompatibilityJEL ClassificationD72-D73-H11-H83