This paper studies the impact of national fiscal rules on government size as measured by the ratio of government expenditures to gross domestic product. We develop a model of the budgetary process and show that a common pool problem may arise which can be mitigated through fiscal rules. We test the model’s predictions using a novel time-series cross-section dataset of 27 European Union members for the period between 1990 and 2011. Corroborating the model, we find that fiscal rules have a negative impact on government size. Contrasting the model, their impact becomes smaller as the number of ministers increases.
political fragmentation fiscal rules government size