Government in Crisis: Opening the “Black Box” of Intra-Cabinet Competition Over Budgetary Allocation∗

With the onset of the current economic and financial crisis in Europe, questions about the power of core executives to control fiscal outcomes are more important than ever. Why are some governments more effective in controlling spending while others fall prey to excessive overspending by individual cabinet ministers? We approach this question by opening the “black box” of intra-cabinet decision-making. Using individual cabinet member’s contributions to budget debates in Ireland, we estimate their positions on a latent dimension that represents their relative levels of support or opposition to the cabinet leadership. We find that ministers who are close to the finance minister receive a larger budget share, but under worsening macro-economic conditions closeness to the prime minister is a better predictor for budget allocations. Our results, therefore, show that the effectiveness of delegating fiscal authority crucially depends on the economic environment.