Do the personal characteristics of finance ministers affect changes in public debt?
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Using a unique dataset of the personal characteristics of national finance ministers in Western Europe (1980–2010), I show that a finance minister’s experience affects the national debt-to-GDP ratio. The increase in the debt-to-GDP ratio is smaller if the finance minister stays in office for an additional year. This result is robust to the inclusion of the personal characteristics of prime ministers and a measure of political stability. However, the magnitude of the effect is sensitive to how finance ministers are selected in the econometric model when more than one minister holds office during a particular year. The estimation of interaction terms further reveals that experience particularly matters in election years or in times of negative GDP growth because an experienced finance minister has the power to restrict the usual increase in the debt-to-GDP ratio. In contrast, a finance minister’s educational background and ideological leaning have no significant impact on the debt-to-GDP ratio.
KeywordsPublic finance Public debt Finance minister Personal characteristics
JEL ClassificationD78 H30 H62
I am grateful to two anonymous reviewers and the Editor-in-Chief, William F. Shughart II, for their very helpful suggestions, which have significantly improved the paper. Furthermore, I thank Etienne Farvaque, Jakob de Haan, Friedrich Heinemann, Tanja Hennighausen, Konrad Stahl and Mustafa Yeter, my colleagues at the ZEW, as well as session participants at the annual meeting of the Verein für Socialpolitik 2011, the 2nd World Congress of the Public Choice Societies 2012, the 68th Congress of the International Institute of Public Finance 2012 and the 18th Spring Meeting of Young Economists 2013 for their valuable comments. Research assistance from Elisabeth Artmann, Marius Maximilian Benden, and Laura Renner is gratefully acknowledged.
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