New research from UB School of Economics contradicts claims that government formation deadlocks negatively affect economy

The results of a recent study co-authored by the UB School of Economics researchers Daniel Albalate and Germà Bel contradict frequent claims that long periods of government formation deadlock negatively affect an economy. The authors studied the impact of the delay in government formation in Belgium following the June 2010 election. This period of government formation impasse has been the longest ever recorded in history. However, the findings show that the Belgian economy did not suffer an economic toll. On the contrary, gross domestic product per capita growth was higher than would have otherwise been expected.

This study constitutes the first evaluation of the effect of a lengthy period of government formation impasse on economic growth. Nonetheless, Daniel Albalate and Germà Bel have warned against the temptation to generalise the findings to other countries with different structure and levels of government, separation of powers and economic governance. The results have been published in the scientific journal Governance under the title “Do government formation deadlocks really damage economic growth? Evidence from history’s longest period of government formation impasse”.

The UB School of Economics researchers found that the rate of growth of Belgium’s GDP was higher during the period of government formation deadlock than it would have been in the same period with a full-powered government in office. The researchers argue that economic growth was not negatively affected because the government formation deadlock did not translate into policy volatility. This is because a caretaker government –empowered to take all decisions in relation to ordinary matters and urgent matters when so needed– was always in place during the 18 months of deadlock. At the same time, the political stability at the regional and supranational levels palliated the effects of political instability at the federal level. This must be understood within the country’s multilevel governance structure, which assigns a considerable number of functions and powers to the communities and regions, above all to Flanders and Wallonia.

Belgium’s relatively good quality of governance also seems likely to have played a role in preventing the transfer of political instability into the economic arena and generating volatility and uncertainty. Finally, the government formation deadlock slowed the pace of fiscal consolidation. The results of the study support the conclusion that this is one of the factors that explains Belgium’s relatively higher GDP per capita growth rate.

Lengthy government formation processes in parliamentary regimes are not new, but have become more prominent in recent times because of the increasing fragmentation of parliaments. The June 2010 election in Belgium resulted in a highly fragmented political landscape, with 11 different parties winning seats in the House of Representatives. The high degree of political fragmentation combined with ideological differences and increasing tensions between the Flemish and Walloon regions impeded government formation. Belgium took 541 days to establish a full-powered federal government, surpassing the 353 days of government deadlock in Cambodia 2003-2004, which was the longest ever period of government formation deadlock in a democratic parliamentary regime up to that point.

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