Government weakness and local public debt development in Flemish municipalities

The Weak Government Hypothesis states that government fragmentation leads to higher public deficits and debt. This relation can be explained by government inaction, common pool problems or the strategic use of debt that arise in coalition governments. Importantly, whereas government inaction models concentrate on the short-term effects of government fragmentation on indebtedness, common pool and strategic debt models imply that such effects will persist in the long term. We test these hypotheses using a large panel of data on municipal debt in 298 Flemish municipalities (1977-2000). We find that there is no long-run effect from weak governments. However, there is general support for the fact that the number of parties in a coalition has a positive effect on the municipality's short-term debt levels-in line with government inaction models.