Who Decides? Coalition Governance and Ministerial Discretion

Who decides policy in a coalition government? Specifically, does the party occupying a ministerial portfolio control policy in that jurisdiction? This question is central to the study of coalitions but is rarely tested because of the problems in identifying and measuring policy. This paper sidesteps these obstacles using an empirical strategy based on rational partisan theory. The theory establishes expectations of changes in monetary policy and macro-economic outcomes following changes in policy-maker. By testing for partisan effects following portfolio changes we can infer which changes are relevant and to what degree the Minister of Finance is the autonomous monetary policy-maker. The application of the test, looking at 16 parliamentary democracies in a period of volatile monetary policy and flexible exchange rates, indicates that policy-making is not consistent with full ministerial discretion. Rather, policy appears more responsive to changes in cabinet leadership and to the preferences of cabinet leaders.