Challenges in Sustainability | 2015 | Volume 3 | Issue 1 | Pages 1–15
DOI: 10.12924/cis2015.03010001
Challenges in
Research Article
Sustainability of Fiscal Policy in Democracies and Autocracies
Stefan Wurster
Institute for Political Science, Trier University, Universit
atsring 15, D-54296 Trier, Germany;
E-Mail:, Tel.: +49 6512012139
Submitted: 3 March 2015 | In revised form: 10 August 2015 | Accepted: 11 September 2015 |
Published: 30 September 2015
Abstract: This paper tries to identify the fiscal sustainability record of democratically and autocratically
governed countries by applying various performance indicators (payment defaults, national debt, foreign
assets) and also to clarify what effect the characteristics of a regime have on consolidation and inter-
temporal budgeting efforts in a country. Important economic, social and environmental challenges of the
future cannot be addressed if long term financial viability is not preserved in a country. The study identifies
two key findings: while in the past, democracies have clearly found it easier to preserve their solvency
and to avoid government bankruptcy, a similar advantage can no longer be detected for democracies in
terms of reducing national debt and foreign debts. Why democracies, in spite of their arrangements with
a sensitivity for the public good and for due process, are finding it so difficult to avoid shifting their debts
to future generations (to undertake cutback measures and to provide sufficient financial foresight) can in
principle be interpreted as the other side of the coin, namely highly presence-oriented interests boosted
even further through the short democracy-specific time horizon.
Keywords: autocracy; comparative policy research; democracy; regime type; state finances; sustainable
government finances
1. Introduction
Against the background of the current financial and eco-
nomic crisis, doubts have clearly increased about the gen-
eral superiority of countries with a democratic constitution
versus autocratically governed countries, in terms of the
sustainability of their national finances. Moreover, to pre-
serve long-term solvency and to achieve a balanced inter-
generational budget that represents a fundamental condi-
tion for sustainable development. This article is grounded
in the assumption that important economic, social and en-
vironmental challenges of the future cannot be addressed,
if long term financial viability is not preserved in a coun-
try. The dramatic household situation in several coun-
tries on the European periphery (Greece, Italy, Ireland,
Portugal, Belgium), as well as other democracies on the
globe (Japan, Iceland, USA), raise the question of whether
democratic societies may not have systematic deficits in
the consolidation of their national finances [1]. In com-
parison, it seems to have been considerably easier in the
past for at least some autocratically governed countries
(Kuwait, Russia, Saudi Arabia, China) to keep their na-
tional debt under control and to make financial provisions
for the future. To what extent these cases can be general-
ized, what specific cause and effect relationships exist be-
tween a country’s regime type and the development of its
national finances, and what other economic and social fac-
tors play an important role in this context in addition to the
degree of democratic or autocratic development, is subject
of a highly controversial debate in the literature (cf. [2–6]).
In principle, it can be stated that a fiscal policy that is
oriented towards the criteria of sustainability is not only ex-
2015 by the authors; licensee Librello, Switzerland. This open access article was published
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tremely important for the stability and organizational capa-
bility of a modern political system (prevention of govern-
ment crises through insolvency), but that shifting financial
burdens onto the shoulders of future generations should
be prevented, also to ensure a development that is fair to
all generations (preserving future financial freedom to act)
The special importance of this task explains the focus
of our following considerations which is directed towards
answers to the following key questions:
How democratic and autocratic regimes perform in
terms of the sustainability of their national finances
(measured by the avoidance of payment defaults, the
reduction of their national debt and their foreign debt
and the altitude of foreign assets)?
Does the degree of democratization or autocratiza-
tion really play a significant role in the sustainability
of a country’s national finances, or could it be that
there are other factors involved which influence this
to a much greater degree?
To answer these questions, we will first offer some fun-
damental discussions about the sustainable development
of national finances (Section 2) and then provide some
thoughts about the relationship between the regime type
and sustainable fiscal policy from the aspect of various
theoretical approaches (Section 3). After an operational-
ization of dependent variables (performance indicators for
financial sustainability) and independent variables (regime
type and other potential explanatory indicators), in the
course of which we will also deal with specific data prob-
lems in comparing democracy with autocracy, we will pro-
vide a quantitative analysis in Sections 4 and 5 (description
and explanation of performance results). For that purpose,
the study will first of all use descriptive analytical methods
(performance determination via a comparison of means).
In a second step, the resulting findings will be expanded
and deepened by means of multivariate regressions for the
more than 130 countries included in the study (small states
with less than three million inhabitants were excluded from
the study), for the period from 1990 to 2008 [8]. Finally, the
results will be summarized and evaluated in Section 6. By
following this course, we want to offer a theoretical contri-
bution towards a connection at the interface of regime type
and the discourse of fiscal sustainability, as well as provid-
ing evidence of existing empirical connections.
2. Sustainable Fiscal Policy
Under what conditions a country’s fiscal policy can be
called sustainable? To answer that question, it is useful,
first of all, to look at the general definition of sustainabil-
ity provided by the Brundtland Commission in 1987. In the
sense of intragenerational, as well as intergenerational jus-
tice, it means “to meet the needs of the present generation
without compromising the ability of future generations to
meet their own needs” [9]. The extension of political re-
sponsibility beyond the generations living today to include
future generations ([10] p. 27; [11] p. 7) implies an orien-
tation towards the principle of making provisions for risks,
towards the principle of intergenerational justice (fair equal-
ization of burdens between generations) and the continu-
ous development of opportunities for future generations (cf.
[12] p. 28; [13] p. 54). Latitudes must be created today in
order to be able to solve future problems.
Translated into sustainable fiscal policy, this means first
of all (aspect of risk management) that the present-day
budget policy should be such that it can be continued on a
sustainable basis without plunging the nation into a finan-
cial squeeze (cf. [14] p. 463; [15] p. 807; [16] p. 667).
To deal with the serious danger of a government losing
its ability to meet its financial commitments (national insol-
vency) [17], a weak but risk-reducing sustainability can be
achieved mainly through preserving a society’s credit wor-
thiness and its capacity to pay its debts [18].
For an intergenerationally just fiscal policy (principle of
strong sustainability, cf. [19] p. 23), it is also necessary to
ensure a just equalization between generations and to pre-
vent the exploitation of future generations (cf. [20] p. 31;
[19] p. 110). It can be implied that a government policy that
finances a nation through indebtedness is shifting burdens
onto the shoulders of future generations (cf. [21] p. 27;
[22]), as long as it is not only adjusting temporary fluctua-
tions due to the economy reacting to extraordinary burdens
or times of emergency (such as wars, natural catastrophes,
etc., cf. [23] p. 294; [24] p. 124; [25]) or corresponding
to the Pay-as-you-use principle [26]. In particular, the fi-
nancing of purely consumer-oriented expenditures can be
viewed as problematic (cf. [19] p. 115). A shifting of bur-
dens occurs when subsequent generations experience a
direct loss of benefits due to higher taxes necessary to
amortize debts and to finance the servicing of debts (cf.
[27] p. 250; [20] p. 1). Moreover, an excessive national
debt can reduce the dynamics of a country’s economic de-
velopment (crowding out of credit-financed private invest-
ments, cf. [16] p. 627) and trigger a negative spiral of inter-
est debt [28]. It could also limit the leeway for future invest-
ments (such as R&D expenditures), resulting in a smaller
total capital stock that is passed on to future generations.
However, in the opposite sense, to continue providing fu-
ture generations with opportunities, their financial degrees
of freedom and action must be preserved (cf. [29] p. 13)
and expanded in the form of the most positive rate of sav-
ings possible, by not only investing in the future, but also
by forming the greatest possible financial reserves. These
reserves are then available in the future to be able to solve
important economic, social or environmental problems. Up
to what degree it might be useful also to finance invest-
ments for the future through indebtedness is a subject of
great controversy (cf. [30] p. 173; [31]). The problem of in-
tertemporal budgeting lies in determining the most appro-
priate taxation rate for future revenues and expenditures
([32] p. 19). Thus, it is in particular the implicit indebted-
ness of a country that follows primarily from future claims
under the pension system (pensions of public servants) or
the health system that is difficult to assess, since it de-
pends to a major degree on future labour and social legis-
lation and on economic development (cf. [24] p. 221; [33]).
To identify the various dimensions of fiscal sustainabil-
ity (risk management, intergenerational indebtedness and
savings rate) as completely as possible, and to better eval-
uate the performance of countries, this study uses a total of
four performance indicators [34]. Following a trend in pol-
icy analysis, we are evaluating the performance of regimes
with the help of policy outcome variables [35]. However,
since not only democracies, but also autocracies are in-
cluded in this study, we are incurring a double problem with
data. Not only is access to data in autocracies far more dif-
ficult (selection bias) [36], but there is also the danger that
the data made available may have been systematically fal-
sified. In interpreting data, these problems must always be
taken into account, even when—as in this case—generally
accepted data sources (World Bank, IMF) are evaluated.
To increase the validity of results, we used only such data
in our performance evaluation which were obtained without
the influence of autocratic states. Thus, we evaluated how
nations performed in view of their solvency (risk manage-
ment), based on the frequency of actual payment defaults
(national insolvencies in the past). Consideration of de-
fault events (suspension of due payments by a state), even
though the exact conditions of a default can vary from case
to case (cf. [37]), are based on robust, often used and less
controversial data (cf. [38]).
To enable us to identify the (long-term) development of
a country’s indebtedness situation in the most differenti-
ated form possible, it seemed useful to look not only at a
country’s general national debt (in relation to its GDP) [39],
but also at its foreign debt (as measured by the amount of
the country’s loans with the IMF) [40]. It can be argued that
this foreign debt, in contrast to the debt owed to domestic
creditors, is particularly problematic for a state, since some
important instruments for lowering it (especially inflationary
measures) are not available.
Finally, the picture of a performance evaluation would
not be complete without considering a country’s intergen-
erational austerity measures in addition to its mere indebt-
edness. The accumulation of foreign assets (measured as
a country’s currency reserves in relation to its GDP) can be
regarded as an important indicator.
The performance indicators we used are partly cor-
related with each other (see Table 1). However, in no
case does the measure of association reach a value of
more than r = 0.15*** [41]. Not surprisingly, a particu-
larly close relationship exists between the indicators of na-
tional debt and foreign debt. On the other hand, no par-
ticularly strong relationship can be detected between na-
tional debt and payment defaults. It becomes clear that no
deterministic relationships exist in that case if we realize
that Argentina—in spite of a national debt of “only” 64%
of GDP in 2001/2002 had to declare national bankruptcy,
while Japan with a national debt that by now amounts to
almost 200% of GDP has so far been able to avoid such a
step due to its high economic power and low foreign debt
(cf. [21] p. 12). Yet accumulated foreign reserves very of-
ten seem to go hand in hand with low national debt and a
low probability of payment default.
Table 1. Target dimensions of fiscal sustainability and correlation. results
Prevention of payment
default (Source for
payment defaults in a
country [38])
Low national debt
(Source for national debt
in relation to GDP [42]
Low foreign (Source for
pro capita foreign debt
through IMF loans [42];
own calculations) debt
High foreign assets
(Source for currency
reserves in relation to
GDP [42]; own
Prevention of payment default 1.00 0.09 *** 0.12 *** 0.04 **
Low national debt 0.09 *** 1.00 0.15 *** 0.12 ***
Low foreign debt 0.12 *** 0.15 *** 1.00 0.03
High foreign assets 0.04 ** 0.12 *** 0.03 1.00
3. Fiscal Sustainability and Regime Type
Before any statement can be made on a theoretical level
about the connection between fiscal sustainability and the
regime type, the latter must be defined more precisely in all
its possible variations. When we speak of political regime
types, we can think of a continuum (cf. [43]), with the ideal
(stable and contained) democracy at one extreme and a
perfectly autocratic (totalitarian) regime at the other ex-
treme, and with a broad grey area of mixed types (defective
democracies, electoral autocracies) in between.
However, based on the lean definition of a democracy
by Dahl (public contestation and the right to participate),
one could argue that a cardinal criterion of differentiation
can be found between democracies and autocracies which
relates to the existence or non-existence of contested elec-
tions. Their existence, which is tied to the three conditions
of “(1) ex ante uncertainty: the outcome of the election is
not known before it takes place, (2) ex post irreversibility:
the winner of the electoral contest actually takes office, (3)
repeatability: elections that meet the first two criteria occur
at regular and known intervals” ([44] p. 69), changes the
logic—as the argument continues—of a political system in
a fundamental way, since it has fundamental impact on the
responsibility of the government, the citizens’ possibilities
to participate, and political competition in general.
The special advantage of the very lean differentiation
we have chosen between democracy and autocracy, which
includes neither aspects of division of powers nor of civil
rights, is that it takes into account central institutional and
procedural characteristics of a regime, but does not include
the policy dimension, and this is especially important for
the following performance evaluation [45].
For measuring the regime type, we used the current
data set (DD) by Cheibub, Gandhi and Vreeland [44,46],
“Democracy and Dictatorship”, since it is not only based
on the above named criteria of differentiating between the
regime types and offers a comprehensive data set in lon-
gitudinal and cross-sectional comparison, but also pos-
sesses a high degree of construct and content validity. To
increase the robustness of the results of the regression we
additionally used a data set presenting a combination of
the popular democracy indices Freedom House and Polity
What theoretical expectations can be formulated in
view of the fiscal performance effect of the regime types,
which—as will be shown below—are following different log-
ics of function?
In principle, the following considerations are based on
the so-called Churchill Thesis, which calls democracy the
relatively best form of government (cf. [48] p. 7566). Par-
allel to the strengths of democracy in its fundamental fields
of competence, the input legitimacy (through free and fair
elections), through granting citizens participation and con-
sideration for the preference of today’s (voting) citizens (cf.
[49] p. 474), can also be assumed to have advantages with
regard to its fiscal sustainability performance (avoidance of
financial crises, taking the interests of future generations
into account, willingness to save).
Arguments supporting this can be derived first of all
from considerations of institutional theory. In principle,
we can assume that stable and predictable institutional ar-
rangements would favour a sustainable policy development
that depends on long-term stable framework conditions
[50]. Following Padro I Miquel [51], it is precisely the autoc-
racies that are characterized by significantly lower institu-
tional stability in comparison with democratic societies. In
contrast to those, many autocracies find it much more diffi-
cult after a change of rulers to organize a smooth transition
without fundamental upheavals. However, the resulting po-
litical instabilities and ruptures could be a heavy burden to
sustainable policy development and could promote indebt-
edness (cf. [23] p. 303). Even the uncertainty about the
long-term continuity of an authoritarian regime alone can—
according to Padro I Miquel’s theory—promote an ineffi-
cient type of rule that focuses on short-term goals [51],
which, when in doubt, can hardly afford to be concerned
with fiscal sustainability. In contrast, the institutional frame-
work conditions in the democracies, which are more stable
in the long run, increase the confidence of investors in their
readiness to repay obligations (high degree of confidence)
which gives them easier access to the credit market ([52]
p. 36; [3] p. 2; [53]). The more favourable credit conditions,
with other things being equal, not only facilitate the repay-
ment of debts but also most likely decrease the probability
of national insolvencies.
Other arguments speaking for a fiscal policy advantage
of democracies can be derived from a stakeholder-centred
theoretical perspective. Thus, advocates of the Rational
Choice approach by Bueno de Mesquita et al. [54,55]
assume that the possibility of gaining influence over po-
litical decisions is always more broadly based in demo-
cratic countries than in autocratically governed countries.
Since as a rule, the electorate in democracies, in con-
trast to that in autocracies, consists of all eligible voters,
a government—to forge a winning coalition on which its
rule can be based—must to a much greater degree sat-
isfy the interests of large parts of the population. For
autocratic rulers, who only have to consider the interests
of a sometimes very small winning coalition, which can
consist, for example, of important military figures, high
party functionaries or economic elites, it is rational to pro-
vide mainly private goods (means exclusively preferred by
specific population groups) while democratic governments
must offer far more public goods with a high regard for so-
ciety as a whole. The prevention of payment defaults, with
the associated consequences for the whole society, can be
especially regarded as such public goods [56].
However, for the goal of a sustainably generation-
oriented fiscal policy, it is also vital to what extent the in-
terest of future generations is being taken into consider-
ation by the electorate, which even in democracies can-
not consist of more than all the voters alive today. Based
on a debate that goes back at least as far as Tocqueville
[57], and is currently making a come-back namely about
democracy forgetting the future [49,58] the question arises
whether democratic countries are finding it especially diffi-
cult to integrate the interest of future generations with their
political decision-making processes just because their key
concern is to cater mainly to the preferences and interests
of the people living today [59]. Such a consideration of in-
terest in democracies seems plausible especially when it
can be assumed that this is connected with advantages for
the majority of present generations [60]. With respect to
public indebtedness, it can now be argued that in general,
citizens in a democracy want to avoid this (cf. [5] p. 28),
but that the urge is always there to follow a short-range
strategy of maximizing expenditures [61], also due to a fis-
cal illusion among the electorate [62]. Under certain cir-
cumstances it is also possible in democracies, in spite of
the risk of being punished by the voters, to push through
spending cuts (cf. [63] p. 36) and thus to limit the shifting
of burdens to future generations. The urge to maximize
short-term spending decreases particularly when the con-
sequences of excessive indebtedness, usually perceived
only as diffuse future costs, become acutely manifest for
the electorate, for example in the course of a financial cri-
sis (cf. [5] p. 20). This may indeed present an impor-
tant difference in comparison with autocratically governed
states, which can continue with an indebtedness strategy
even in such an event for as long as the advantage for the
small winning coalition is not over-compensated by the de-
liberately accepted disadvantages for the country’s overall
economy [64].
If we then look more closely at the policy formation and
decision-making processes that predominate in democra-
cies, there could be a problem with regard to sustainable
fiscal policy in spite of the potential advantages of a high
free-market orientation that will be discussed below. That
problem could lie in the short political time horizon that
characterizes democracies. A democratic government’s
constant focus on meeting acutely occurring challenges
under the additional pressure of constantly looming elec-
tion campaigns [65] not only makes long-term planning and
decision-making processes more difficult [66], but also in-
creases the danger of excessively weighting present-day
interests and pushing the problem into the future [58,67],
which in turn could have negative repercussions on indebt-
edness performance (cf. [68] p. 59; [69]). An autocratic
ruler, once firmly in the saddle, may find it easier to escape
such a short-term-oriented policy development. Since he
does not have to provide regular free elections, there is
also no danger of an electoral business cycle. In democra-
cies, governments are always exposed to distribute voting
present before elections [70], which increases the risk of
excessive leverage.
The same may apply to the influence of powerful dis-
tribution coalitions which, following Olson’s argument [71],
are of especially great importance in developed democ-
racies. Their lobbying can, so the thinking goes further,
make economical budgeting in the sense of fiscal sustain-
ability more difficult (cf. [72] p. 5), unless the political
decision-makers put a stop to their (usually consumptive
and presence-oriented) spending wishes [73]. In particu-
lar, these distribution coalitions can also act as powerful
obstacles to necessary fiscal cost-cutting programs. Cor-
responding studies on government fragmentation shows,
that the higher the number of decision makers in demo-
cratic governments are (number of parties in a coalition,
number of ministers in the cabinet, number of interest
groups in the cabinet) the more difficult cost-cutting pro-
grams [74,75]. Especially in enforcing such unpleasant
and sometimes harsh reforms usually directed against the
interests of a majority of currently voting citizens, demo-
cratic regimes seem to have far more difficulties than au-
tocratic regimes. On the one hand, this has to do with the
fact that democratic governments cannot easily rule with-
out facing resistance from the usually large number of insti-
tutional power limiters and veto players (established pub-
lic control mechanisms). On the other hand, autocracies
with their means of repression have an instrument—rarely
available in democracies—to enforce a restrictive cost-
saving policy even against fundamental resistance among
their own population.
However, these potential advantages of autocracies,
which are highly controversial especially since there are
fewer effective forces that can prevent reforms [76], are
connected with considerable costs. Thus, the well-
developed apparatus of repression and suppression which
the autocracies must maintain because of their small input
legitimization (reduced participation rights) to safeguard
the stability of their regime, can cause serious financial
burdens in addition to other problematic consequences
[77]. The lack of public control mechanisms, which on the
one hand (partially) increases the regime’s ability to act,
can in time complicate sustainable fiscal policy. Even if we
assume—in the sense of Olson’s Stationary Bandit The-
sis [78]—that the expectation of a long rule in autocracies
leads to a policy based on long-term goals, there will al-
ways be the latent danger that the authoritarian rule will de-
teriorate without effective control. The lack of institutional
safety mechanisms and of political competition for leader-
ship positions always means, at least in the long run, an
inefficient policy prone to corruption and only benefitting a
small group of potentates [79]. On the other hand, the pub-
licly controlled processes of competition in democracies
ensure their ability to learn and to correct errors [57], since
troubles become known earlier (early warning system) and
politicians are obligated through their accountability to the
majority of citizens to handle public funds as prudently and
transparently as possible (reduced probability of corrup-
tion). Historically, the highly competition-oriented politics
in a democracy, in combination with institutional provisions
and control institutions, also represents a favourable foun-
dation for a system of market economy in general, as well
as for an open and functioning capital market in particular
(cf. [80] p. 206).
If after an analysis of the individual theory strands, we
carefully compare all the above mentioned arguments with
each other, we find that in spite of some objections (distinc-
tive fixation with the presence, low resistance to distribu-
tion coalitions, short-term political time horizons), there are
more arguments for superior sustainability performance in
democratic countries (strong concern for the public good,
well-defined controls on government, high institutional sta-
bility, greater ability to learn and to correct errors, strong
orientation towards competition). Starting out from the the-
oretical considerations, two similar hypotheses can be pro-
posed about the connection between regime type and fis-
cal risk management or between regime type and intergen-
erational justice / providing intergenerational opportunities:
Hypothesis 1: Countries with a democratic constitution
find it easier than their autocratic counterparts to avoid na-
tional payment defaults.
Hypothesis 2: Altogether, democracies find it easier to
lower their national debt. A democratic type of regime has
a particularly dampening effect on foreign debt and a pos-
itive effect on the accumulation of foreign assets.
However, in addition to the characteristics of regime
type (measured by the Democracy /Dictatorship Index and
the data set of Hadenius and Teorell), other social, and in
particular economic factors have an impact on a country’s
fiscal sustainability performance (cf. [81]). To accurately
identify the actual impact of the regime type component,
it is therefore necessary to include these factors into the
First of all, we must refer to a country’s state of eco-
nomic development (per capita GDP) as a central mea-
surement. While a high level of economic development,
just as a strong growth momentum, provides a country
with substantial opportunities to generate income (higher
tax revenues, etc.), Wagner’s Law (cf. [82]) states that an
economically developed society also tends to have clearly
higher state spending (provision of cost-intensive govern-
ment services). So we also take into account public expen-
diture (% of GDP) and tax revenues (% of GDP). While the
overall effect is a matter of debate, it is probably true that
altogether, a positive trade balance in a country generates
additional resources for serving debts. As another relevant
economic factor in connection with a country’s indebted-
ness situation, we also considered the development of the
country’s inflation rate in our later investigation. Here, it can
be argued that high currency devaluation in the sense of an
inflationary tax can tend to lower state indebtedness (cf.
[83] p. 295; [23] p. 305). The natural (energy-) resources
available in a country and the interest level were also re-
garded as potential indicators. While on the one hand, a
low interest level makes it easier to repay debts, but also
is an incentive for additional new indebtedness, a country’s
wealth of resources can open additional sources of govern-
ment income, but the intensive debate about (autocratic)
rentier states shows (cf. for example, [84]) that it can also
promote action by the government that is particularly inef-
ficient and subject to corruption. With regard to factors of
social structure, the population size of a country was taken
into account. It can be regarded as a measure of a coun-
try’s international importance. Here, it has to be examined
whether the size (and thus the international relevance) of
a country may possibly act as a buffer that makes a credit
crunch and thus a national insolvency less likely (too big
to fail). We also reviewed the effect of a society’s age dis-
tribution as another factor of social culture. Theoretically,
one could argue that in an ageing society (coupled with a
low birth rate), the existence of powerful distribution coali-
tions among the older population groups [71], the interests
of subsequent generations, which are difficult to organize,
are systematically neglected ([85], fading intergenerational
altruism), and a high senior population rate could—through
increasing social expenditures—lead to pressure for higher
spending (see [86] p. 175; [87]). As the last factor, we also
looked at the extent in which a country is involved in military
conflicts as an indicator of whether it is particularly prone
to indebtedness. It is relatively easy to argue that military
conflicts are generally connected with considerable gov-
ernment spending while they allow the revenue situation of
the country to erode. Table 2 shows all explanatory factors
included in the later regression analyses.
Table 2. Explanatory factors.
Explanatory factors Description
Regime type (Democracy/autocracy) Democracy/Dictatorship Index. Source: [46].
Regime type Hadenius and Teorell Data Set. Source: [47].
Per capita GDP Per capita GDP: Source: [42].
Growth of GDP Annual growth of GDP, in %. Source: [41].
Public expenditure % of GDP. Source: [42].
Tax revenues % of GDP. Source: [42].
Trade balance Trade balance. Source: [42].
Inflation rate Inflation rate. Source: [42].
Energy imports Net energy imports (% of energy use). Source: [42].
Real interest rate Lending interest rate adjusted for inflation as measured by the GDP deflator. Source: [42].
Population Total population. Source: [42].
Population ages > 65 Population ages 65 and above (% of total). Source: [42].
Military conflicts Intensity of military conflicts. Source: [88].
4. Fiscal Sustainability in Comparison
If we compare mean values of democracies and autocra-
cies (and all their subtypes) using the four performance in-
dicators (their general statistics are shown in Table 3) [89],
the first thing that becomes apparent is that democratically
governed countries are clearly better off in terms of their
solvency (see Table 4). So the probability of payment de-
faults in democracies is clearly lower than that of their au-
tocratic counterparts (democracies 0.15; autocracies 0.34;
total average 0.22). The values expressing connections
showed the same trend when we based them on simple
correlation calculations between democracy and payment
defaults (r = 0.22***).
Table 3. Descriptive statistics.
Payment defaults National debt Foreign debt Foreign assets
Maximum 1.00 289.80 812.91 58.30
Minimum 0.00 1.40 0.01 0.01
Mean 0.22 59.93 14.62 6.58
Standard deviation 0.43 38.54 41.82 3.13
Number of cases 1377 748 2394 2132
Table 4. Comparison of Means by Type of Regime.
Type of regime Payment defaults National debt Foreign debt Foreign assets
Total (1990–2008) 0.22 59.93 14.62 6.58
Democracy (1990–2008) 0.15 55.47 16.41 4.71
Autocracy (1990–2008) 0.34 69.15 12.49 9.33
Total (1990–1999) 0.19 68.17 13.95 4.05
Democracy (1990–1999) 0.13 59.96 12.76 3.06
Autocracy (1990–1999) 0.26 77.79 15.23 5.37
Total (2000–2008) 0.06 53.00 15.35 9.24
Democracy (2000–2008) 0.06 52.87 20.00 6.31
Autocracy (2000–2008) 0.07 53.48 09.09 14.02
While the top positions were mainly held by the democ-
racies of the OECD world, there were also some excep-
tions to this rule among democratically governed coun-
tries (such as Argentina), while some autocracies (Sin-
gapore, Saudi Arabia) showed good results. Particu-
larly poor results concerning government payment defaults
were shown by countries such as Russia, Iran, Myanmar
and especially the autocracies on the African continent
(such as Niger, Togo or Cameroon) and countries in Cen-
tral and South America (for example Honduras, Nicaragua,
Peru, Argentina, Brazil and Venezuela). The democracies
also seem to show a slight advantage in the category of
lowering national debt [90], but when we look at details,
this advantage is noticeably smaller than in the category
of avoiding acute payment defaults. So among the group
of countries with the highest indebtedness (national debt
of over 100% of GDP) are quite a few democratic indus-
trial countries (such as Japan, Greece, Italy and Belgium).
Therefore, the connection between democratic rule and
national debt is also less pronounced at r = 0.14**.
When we look at the development of foreign debt or
the accumulation of foreign assets, democratic countries
are at a disadvantage. In those categories, the majority
of democratically governed countries fared by no means
as well as their autocratic counterparts. On the contrary,
some economically emerging autocracies (China, Indone-
sia, Russia) did particularly well in expanding their financial
reserves. Not only the average foreign debt of democra-
cies exceeded that of the autocracies (democracies 16.41;
autocracies 12.49; total average 14.62), dictatorships also
seem to have been more successful in the past in accumu-
lating foreign assets (democracies 4.71; autocracies 9.33;
total average 6.58). Accordingly, there are connections be-
tween democracy and foreign debt (r = 0.04*) and between
democracy and foreign assets (r = 0.07***). It would
therefore certainly be out of place to speak of a general su-
periority of democracies across all dimensions of the study.
This impression is reinforced when we take, in addition
to the full time period (1990–2008), a closer look into the
sub-time periods 1990–1999 and 2000–2008 (see lower
column of Table 4). While democracy advantage with
regard to payment defaults and sovereign debt is much
higher in the 1990s, we can see a decrease in the 2000s.
Even more pronounced are the differences in foreign debt
and foreign assets between the 1990s and the 2000s.
While democracies had slightly less accumulated foreign
debt than autocracies in the 1990s, the result revolved in
the 2000s. And with regard to foreign assets autocracies
obtain in the 2000s on average more than twice as much
as democracies. So they build their lead significantly in
relation to the 1990s.
5. Regression Analyses
What picture, about the connection between type of regime
and fiscal sustainability performance, emerges when we
take additional potential explanation factors into account in
the course of multivariate regression calculations? To be
able to show results as robust as possible, we calculated a
total of six models for each target dimension (see in detail
Tables 5, 6, 7 and 8). Since the stationarity of the panel
was checked for each target dimension, using the Levin-
Lin-Chu-tests and/or a consideration of the scatter plots,
we could dispense the use of dynamic models. So the
first two models (each with a different regime type index)
provide OLS regressions with a lagged dependent variable
(LDV) and panel corrected standard errors (pairwise se-
lection; PCSE). In doing so we can fix the problem of au-
tocorrelation of the residuals (tested with the Wooldridge
test). The included lagged dependent variable explains
the relatively high corrected R
of these models. See
for the so called Beck/Katz-Standard [91]. To deal with
the problem of heteroskedasticity (tested with the modi-
fied Wald test) we also calculated country-fixed-effects and
time-fixed-effects models (model 3 and 4). In doing so
we can see coefficients ride of specific country or year ef-
fects (for clarity reasons the results of the country and time
dummy variables were not shown in the tables). Finally
we added models for sub-period 1990–1999 and 2000–
2008 (OLS with LDV and PCSE) to see whether the differ-
ences between them shown above have an influence. All
explanatory variables for each model were taken into ac-
count with a time variance of one year (T-1) to test their
delayed impact in time on the dependent variable.
The results listed in Tables 5–8 basically confirm the
findings which already show in the comparison of means,
but they also draw attention to some other interesting con-
Thus, the models concerning payment defaults (cf. Ta-
ble 5), demonstrate a significant effect in favour of demo-
cratically governed countries. This effect remains robust
across all model specifications, thus confirming the previ-
ous empirical results and theoretical assumptions. How-
ever, it appears that the very strong positive effect of
democracy, which is present in the 1990s, is weakening in
the 2000s. While a low probability of default goes hand in
hand with strong growth rate, government insolvencies co-
incide with a high inflation and real interest rate and seem
to occur somewhat less frequently in large and aged coun-
tries. While in particular, the economic variables are thus
exercising a marked influence on a country’s solvency, the
factor of a country being prone to war is not reaching a
significant explanation level across all models.
Low national debt in a country is closely connected with
a high growth rate, while the level of economic develop-
ment does not appear to have such an effect (cf. Table
6). The variable of regime type, which is at the centre
of attention here, does show that democratically governed
countries tend to lower their indebtedness more, but the
difference lies in most of the models below the required
significant range [92].
Looking at the different time periods, the debt dampen-
ing effect, which was in force in the 1990s in favor of the
democracies, turns in the 2000s into its opposite (however
without reaching a high level of significance).
Definitely no advantage can be recognized for democ-
racies when we look at foreign debt (see Table 7). Instead,
the partial regression coefficient in this case shows a ten-
dency towards higher foreign debts in democratic regimes
(model 1, 2 and 4), although the difference does not reach
a significant level. Considering the different time periods,
it is striking that in the 1990s, foreign debt in democra-
cies was less pronounced than in autocracies (however
this relationship, controlling for the other factors, does not
reach high level of significance). Yet, in the 2000s, democ-
racies accumulated significantly more foreign debt than
their autocratic opponents. So situation deteriorated for the
democracies over time. While the foreign debt of a country
with high economic growth rates and a positive trade bal-
ance tends to be lower, aged societies seem to accumulate
higher foreign debt.
Looking at the last target dimension, the size of a coun-
try, as well as its low probability of involvement in war,
seems to play an important role for the accumulation of
foreign assets. Positive trade balance also seems to be
helpful. By contrast, democratic governance represents
a signified obstacle to the accumulation of foreign assets.
This effect is robust and can be observed across all model
specifications. Again, the situation for democracy deterio-
rated considering not the 1990s but the 2000s.
In total, it can be stated that under the effect of other
indicators, the regime type shows a recognizable effect in
favour of democratic countries only in terms of the avoid-
ance of payment defaults. On the other hand, they seem
to be less able than their autocratic counterparts to prevent
the growth of foreign debts, not to mention their greater
inability to form long-term financial reserves. Particularly
problematic is also the fact that democracy tends to deteri-
orate its impact with regard to fiscal sustainability over the
last two decades. Of course this result, which is somewhat
sobering for the democracies, can be somewhat bright-
ened when we take into account that they are far more ded-
icated than autocracies in taking financial action in future-
oriented political areas. Thus, they are able to balance the
burden they place upon future generations (through exces-
sive indebtedness) with important future investments [93].
Table 5. Regression calculations on Payment defaults [94].
Payment defaults
(1) LDV-model with
PCSE 1990–2008
(2) LDV-model with
PCSE 1990–2008
(3) Country-FE
(4) Time-FE 1990–2008
(5) LDV-model with
PCSE 1990–1999
(6) LDV-model with
PCSE 2000–2008
Democracy/Dictatorship Index 0.02 * (0.01) 0.02 0.22 *** (0.04) 0.26 0.04 *** (0.02) 0.05 0.03 ** (0.01) 0.03 0.01 * (0.01) 0.01
Hadenius and Teorell Data Set 0.01 * (0.01) 0.02
Per capita GDP 0.01 (0.01) 0.02 0.01 (0.01) 0.02 0.01 (0.01) 0.04 0.01 *** (0.01) 0.1 0.01 (0.01) 0.04 0.01 (0.01) 0.01
Growth of GDP 0.01 * (0.01) 0.02 0.01 (0.01) 0.03 0.01 (0.01) 0.01 0.01 ** (0.01) 0.05 0.01 (0.01) 0.01 0.01 (0.01) 0.05
Public expenditure 0.01 (0.01) 0.02 0.01 (0.01) 0.01 0.01 (0.01) 0.02 0.01 (0.01) 0.02 0.01 (0.01) 0.01 0.01 (0.01) 0.01
Tax revenues 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.01
Trade balance 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 *** (0.01) 0.01 0.01 (0.01) 0.01
Inflation rate 0.01 *** (0.01) 0.08 0.01 *** (0.01) 0.08 0.01 *** (0.01) 0.09 0.01 *** (0.01) 0.14 0.01 ** (0.01) 0.1 0.01 * (0.01) 0.01
Energy imports 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 *** (0.01) 0.33 0.01 *** (0.01) 0.05 0.01 (0.01) 0.02 0.01 (0.01) 0.01
Real interest rate 0.01 * (0.01) 0.03 0.01 (0.01) 0.03 0.01 *** (0.01) 0.07 0.01 *** (0.01) 0.08 0.01 (0.01) 0.02 0.01 (0.01) 0.01
Population 0.01 *** (0.01) 0.03 0.01 *** (0.01) 0.03 0.01 (0.01) 0.13 0.01 *** (0.01) 0.11 0.01 * (0.01) 0.03 0.01 * (0.01) 0.01
Popul. ages >65 0.01 ** (0.01) 0.05 0.01 ** (0.01) 0.06 0.04 *** (0.01) 0.6 0.01 *** (0.01) 0.18 0.01 (0.01) 0.05 0.01 * (0.01) 0.06
Military conflicts 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.02 ** (0.01) 0.08 0.01 ** (0.01) 0.04 0.01 (0.01) 0.01 0.01 (0.01) 0.01
Lagged Dependent Variable 0.7 *** (0.04) 0.71 0.7 *** (0.04) 0.71 0.67 *** (0.06) 0.68 0.75 *** (0.07) 0.01
Constant 0.11 *** (0.02) 0.11 *** (0.02) 0.14 *** (0.04) 0.60 ** (0.20)
0.61 *** 0.61 *** 0.60 *** 0.37 *** 0.58 *** 0.66 ***
Corrected R
0.57 0.36
N 1357 1359 1374 1374 828 529
Table 6. Regression calculations on National debt.
National debt
(1) LDV-model with
PCSE 1990–2008
(2) LDV-model with
PCSE 1990–2008
(3) Country-FE
(4) Time-FE 1990–2008
(5) LDV-model with
PCSE 1990–1999
(6) LDV-model with
PCSE 2000–2008
Democracy /Dictatorship Index 0.53 (1.62) 0.01 5.54 (3.87) 0.06 12.61 *** (3.32) 0.15 2.00 (2.57) 0.02 0.17 (0.68) 0.01
Hadenius and Teorell Data Set 0.13 (0.19) 0.01
Per capita GDP 0.01 (0.01) 0.02 0.01 (0.01) 0.02 0.01 (0.01) 0.08 0.01 *** (0.01) 0.14 0.01 (0.01) 0.01 0.01 (0.01) 0.02
Growth of GDP 0.47 * (0.29) 0.05 0.48 *** (0.13) 0.05 0.28 * (0.17) 0.03 1.92 *** (0.31) 0.22 0.29 (0.23) 0.03 0.63 *** (0.21) 0.06
Public expenditure 0.03 (0.04) 0.01 0.04 (0.05) 0.01 0.02 (0.08) 0.01 0.28 ** (0.11) 0.1 0.03 (0.11) 0.01 0.08 ** (0.03) 0.03
Tax revenues 0.01 (0.04) 0.01 0.01 (0.06) 0.01 0.09 (0.08) 0.01 0.01 (0.15) 0.01 0.01 (0.14) 0.01 0.01 (0.04) 0.01
Trade balance 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.03 0.01 (0.01) 0.02 0.01 (0.01) 0.01
Inflation rate 0.01 (0.01) 0.04 0.01 ** (0.01) 0.04 0.01 *** (0.01) 0.05 0.01 *** (0.01) 0.13 0.01 ** (0.01) 0.05 0.01 (0.02) 0.01
Energy imports 0.01 * (0.01) 0.01 0.01 (0.01) 0.01 0.08 (0.06) 0.22 0.07 *** (0.01) 0.18 0.02 (0.02) 0.03 0.01 (0.01) 0.01
Real interest rate 0.13 (0.10) 0.04 0.14 ** (0.04) 0.04 0.08 (0.07) 0.02 0.08 (0.10) 0.02 0.13 * (0.07) 0.04 0.06 (0.09) 0.02
Population 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.26 0.01 *** (0.01) 0.11 0.01 * (0.01) 0.04 0.01 ** (0.01) 0.02
Popul. ages >65 0.18 (0.12) 0.02 0.16 (0.17) 0.02 3.44 ** (1.40) 0.49 0.99 ** (0.42) 0.14 0.14 (0.45) 0.01 0.05 (0.98) 0.01
Military conflicts 0.53 (0.39) 0.02 0.50 (0.32) 0.02 0.99 (0.73) 0.04 2.56 *** (0.78) 0.12 0.99 (0.68) 0.04 0.29 (0.20) 0.01
Lagged Dependent Variable 0.87 *** (0.03) 0.9 0.88 *** (0.01) 0.9 0.83 *** (0.02) 0.86 0.92 *** (0.01) 0.94
Constant 7.16 ** (3.23) 7.41 ** (3.24) 12.68 ** (4.90) 2.21 (1.73)
0.86 *** 0.87 *** 0.95 *** 0.76 *** 0.82 *** 0.95 ***
Corrected R
0.94 0.75
N 653 659 741 741 282 371
Table 7. Regression calculations on Foreign debt.
Foreign debt
(1) LDV-model with
(2) LDV-model with
PCSE 1990–2008
(3) Country-FE
(4) Time-FE 1990–2008
(5) LDV-model with
PCSE 1990–1999
(6) LDV-model with PCSE 2000–2008
Democracy/Dictatorship Index 0.58 (1.03) 0.01 3.98 (5.43) 0.03 1.64 (3.07) 0.01 0.09 (1.29) 0.01 2.56 ** (1.57) 0.01
Hadenius and Teorell Data Set 0.13 (0.25) 0.01
Per capita GDP 0.01 (0.01) 0.07 0.01 (0.01) 0.06 0.01 *** (0.01) 0.55 0.01 *** (0.01) 0.36 0.01 (0.01) 0.02 0.01 (0.01) 0.11
Growth of GDP 0.53 *** (0.12) 0.06 0.53 *** (0.13) 0.06 0.36 ** (0.20) 0.04 0.72 *** (0.22) 0.08 0.18 *** (0.04) 0.04 1.41 ** (0.60) 0.08
Public expenditure 0.09 (0.07) 0.01 0.09 (0.07) 0.01 0.16 (0.16) 0.03 0.07 (0.13) 0.01 0.02 (0.03) 0.01 0.23 * (0.11) 0.03
Tax revenues 0.05 (0.11) 0.01 0.05 (0.11) 0.01 0.24 (0.16) 0.03 0.16 (0.17) 0.02 0.01 (0.05) 0.01 0.10 (0.19) 0.01
Trade balance 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 *** (0.01) 0.10 0.01 (0.01) 0.01 0.01 ** (0.01) 0.07 0.01 (0.01) 0.01
Inflation rate 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.02 0.01 (0.01) 0.02 0.01 (0.01) 0.01 0.01 (0.01) 0.01
Energy imports 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.06) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.02 0.01 (0.01) 0.01
Real interest rate 0.03 (0.02) 0.01 0.03 (0.02) 0.01 0.01 (0.04) 0.01 0.08 * (0.04) 0.04 0.01 (0.03) 0.01 0.02 (0.03) 0.01
Population 0.01 (0.01) 0.01 0.01 (0.01) 0.01 0.01 (0.01) 0.29 0.01 (0.01) 0.03 0.01 ** (0.01) 0.02 0.01 (0.01) 0.01
Popul. ages >65 0.62 * (0.31) 0.03 0.63 * (0.31) 0.03 21.95 *** (2.68) 1.34 2.09 *** (0.54) 0.12 0.97 *** (0.24) 0.09 0.42 (0.51) 0.02
Military conflicts 0.12 (0.24) 0.01 0.13 (0.22) 0.01 0.15 (1.00) 0.01 0.21 (0.77) 0.01 0.30 ** (0.15) 0.01 0.15 (0.46) 0.01
Lagged Dependent Variable 0.81 *** (0.10) 0.81 0.81 *** (0.10) 0.8 0.93 *** (0.04) 0.9 0.78 *** (0.17) 0.77
Constant 0.67 (1.63) 0.27 (1.86) 0.67 (1.63) 0.87 (1.00) 3.90 (2.91)
0.74 *** 0.74 *** 0.58 *** 0.40 *** 0.88 *** 0.72 ***
Corrected R
0.55 0.38
N 1187 1187 1217 1217 643 544
Table 8. Regression calculations on National debt.
Foreign assets
(1) LDV-model with PCSE
(2) LDV-model with PCSE
(3) Country-FE 1990–2008 (4) Time-FE 1990–2008
(5) LDV-model with PCSE
(6) LDV-model with PCSE
Democracy /Dictatorship Index 343605.8 * (248070.8) 0.01 2403960 *** (1323823) 0.03 3242686 *** (902077.6) 0.05 436856.7 * (306089.3) 0.01 742142.5 ** (328091.9) 0.01
Hadenius and Teorell Data Set 20674.13 (34114.3) 0.01
Per capita GDP 12.29 * (7.49) 0.01 12.88 * (7.92) 0.01 35.43 (78.27) 0.01 152.46 *** (50.88) 0.05 34.53 ** (14.64) 0.02 17.52 * (10.48) 0.01
Growth of GDP 12140.33 (10505.73) 0.01 12214.72 (10161.88) 0.01 1397.25 (48605.14) 0.01 25790.97 (67474.12) 0.01 7935.88 (16993.42) 0.01 20372.7 (15325.34) 0.01
Public expenditure 2667.09 (4657.02) 0.01 1820.81 (4967.05) 0.01 4548.27 (27703.15) 0.01 43918.97 (31719.61) 0.01 2129.86 (5389.35) 0.01 1780.02 (8152.78) 0.01
Tax revenues 9918.28 * (7182.19) 0.01 9834.08 (7141.21) 0.01 8795.80 (35672.11) 0.01 2960.91 (46522.24) 0.01 4043.21 (8524.99) 0.01 29175 ** (11396.11) 0.01
Trade balance 8.61e07 (3.13e06) 0.01 9.54e07 (3.15e06) 0.01 0.01 *** (0.01) 0.21 0.01 *** (0.01) 0.17 0.01 ** (0.01) 0.01 4.04e06 (4.39e06) 0.01
Inflation rate 22.37 (33.91) 0.01 20.99 (32.46) 0.01 308.27 (398.18) 0.01 70.96 (557.23) 0.01 51.78 (40.10) 0.01 2379.20 * (1415.70) 0.01
Energy imports 445.34 (347.02) 0.01 532.67 (362.14) 0.01 1768.19 (9650.65) 0.01 3819.32 (3237.91) 0.01 559.82 * (340.97) 0.01 1181.65 ** (579.79) 0.01
Real interest rate 3059.53 (3750.54) 0.01 3379.10 (3662.46) 0.01 27038.17 (22775.32) 0.01 22637.51 (28229.73) 0.01 2984.86 (3852.86) 0.01 8911.97 (6969.51) 0.01
Population 0.01 (0.01) 0.04 0.01 (0.01) 0.04 1.13 *** (0.02) 5.38 0.17 *** (0.01) 0.81 0.02 ** (0.01) 0.19 0.01 (0.01) 0.07
Popul. Ages >65 16797.91 (22245.99) 0.01 9130.35 (22530.79) 0.01 486356.1 (402904.8) 0.07 308477.5 ** (125440) 0.04 49807.57 (37520.97) 0.01 33052.42 (23109.06) 0.01
Military conflicts 91139.39 * (50570.12) 0.01 92646.05 * (51587.38) 0.01 351558.6 (232373.1) 0.02 724126 *** (212742.9) 0.04 11084.05 (34085.11) 0.01 182992.2 * (93587.36) 0.01
Lagged Dependent Variable 1.05 *** (0.04) 0.95 1.05 *** (0.04) 0.95 0.85 *** (0.12) 0.78 1.02 *** (0.05) 0.93
Constant 129488.4 (102852.7) 117118.9 (125867.1) 18472.29 (106530.6) 398877.6 (271110.8)
0.98 *** 0.98 *** 0.88 *** 0.72 *** 0.94 *** 0.98 ***
Corrected R
0.87 0.72
N 2081 2099 2111 2111 1052 1029
6. Conclusion
The objective of the study was to identify as closely as
possible the financial sustainability performance of demo-
cratic and autocratic regimes by looking at five target di-
mensions. Financial sustainability is of fundamental im-
portance because without it, important economic, social
and environmental challenges of the future cannot be ad-
dressed. The study generates two key findings. While
in the past, democracies clearly had more success than
their autocratic counterparts in preserving their solvency
and in avoiding national bankruptcy, a similar advantage
for democracies cannot be detected when it comes to the
reduction of their national debt and their foreign debt and
to the accumulation of foreign assets [95]. While reliable
institutional framework conditions increase confidence in
the creditability of democratically governed societies (cred-
itors worry less about non-repayment), and evidently re-
duce the danger of government bankruptcy, no such con-
nection seems to exist with regard to indebtedness perfor-
mance. Why democracies, in spite of existing institutional
and procedural arrangements sensitive to the public good
(distinctive controls of government and ability to correct
mistakes, large winning coalition) are having such a hard
time in avoiding to shift burdens to future generations, to
undertake cost saving efforts and to use adequate financial
foresight, must basically be interpreted as the other side
of the coin, namely a strong orientation towards present
interests. This is promoted even more by the short time
horizon typical for democracies. Overall, the associated
incentives for indebtedness seems to be so powerful that
they not only level out any potential differences with regard
to regime type, but also that they remain in place even in
the face of the potentially inefficient investment policy of
autocracies which is so prone to corruption and has little
future orientation.
The results presented here are based on data that ap-
plied to the beginning of the current financial and eco-
nomic crisis. For the time being, it remains to be seen to
what extent they will remain robust beyond that time frame.
Although the performance of democracies has tended to
deteriorate in relation to autocracies over the 1990s and
2000s, past experience is giving us hope that in con-
trast to the autocratically governed countries, the democ-
racies will have a greater repertoire of opportunities avail-
able to at least defend against the dangers of government
bankruptcy. It remains to be seen to what extent this can
be utilized in individual cases as well.
This calls attention to the need of further research
which should extend from a more far—reaching analysis of
connections between regime type and fiscal sustainability
on a theoretical level—especially to a more precise explo-
ration of governance structures and causal mechanisms.
In addition, it seems necessary to have a detailed look at
the framework conditions of financial policy and at other
potential explanatory variables (cultural factors, geograph-
ical conditions, specific constellations of actors, etc.) for
the policy performance analysis in this area of research
that has not had much attention from the aspect of com-
paring regimes.
An older German version can be found under Wurster, S.
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nanzpolitik von Demokratien und Autokratien im Vergle-
ich. dms—der moderne staat— Zeitschrift f
ur Public Policy,
Recht und Management. 2012; 5(2):269-290.
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since the end of the east-west conflict, which spelled
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and the Harrod Domar Model, since tax revenues in-
crease faster than the interest payable. Furthermore,
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