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priorities. If this is true, the delegation of strategic powers to the finance
minister, who necessarily comes from one of the coalition parties, would create
a principal agent problem for a coalition government, that does not arise in a
single-party government. That is, a strong finance minister might abuse his
powers and unduly promote the political interests of his own party at the cost
of others. This problem does not arise under the contract approach, as the
fiscal targets are negotiated among all cabinet members.
Second, delegation and contracts use different enforcement mechanisms. In
one-party governments, the ultimate punishment for a defecting spending
minister is his dismissal from office. Such punishment is heavy for the
individual, but generally light for the government as a whole. It can be used,
if the prime minister is sufficiently strong and has the authority to select and
replace cabinet members.4 In coalition governments, in contrast, individual
defecting ministers cannot be punished easily. Since the distribution of
portfolios is typically given by the coalition agreement, the prime minister
cannot easily dismiss intransigent ministers from parties other than his own.
Breaking up the coalition is the ultimate punishment in coalition
governments. This punishment is heavy for the entire coalition. The point is
illustrated by the fact that fiscal targets are often part of the coalition
agreement. The credibility of this enforcement mechanism hinges on two
conditions. One is the existence of alternative coalition partners in parlia-
ment. The other is the expected response of the voters, as a coalition may be
broken up with the anticipation of new elections.
These different enforcement mechanisms also explain the different
relations between the executive and the legislature in the legislative phase of
the budget process. When a single ruling party enjoys a majority in
parliament, the main concern of the legislative stage is to limit the scope of
defections from the budget proposals by individual members of parliament.
With multi-party coalitions, in contrast, defections from the budget targets,
especially if they are backed up by the coalition agreement, are a weaker
concern. However, each party involved in the coalition will want to watch
carefully that the executive sticks to the coalition agreement. The delegation
approach, therefore, typically makes the executive a much stronger agenda
setter in parliament than the contract approach, while the contract approach
lends more monitoring powers to the legislature than the former.
Finally, commitment to fiscal targets is per se much less credible for one-
party governments. Consider a single-party government with a weak prime
minister and a weak finance minister that has announced a set of fiscal
4 The Japanese example shows that this is not necessarily the case even in one-party settings.