Having inherited an 8 percent budget deficit from the previous socialist government, the new conservative-liberal government of Slovakia has come up with a novel way of keeping budget deficits under control in the future. Starting in 2011, salaries of government ministers will rise and fall depending on the evolution of the fiscus. Thus, a budget deficit of 5 percent will translate to a 10 percent decrease in salaries, while an (unlikely) budget surplus of 5 percent will translate into a 10 percent rise in salaries, etc. It will be interesting to see if this new measure will truly result in a more responsible fiscal policy in the years to come.
Maybe, but it might backfire. Here's how:
Politicans who favor deficits--for whatever reason--may be able to claim the moral high ground by playing the martyr. The financial harm they do themselves by deficit-induced salary cuts could allow them signal their commitment to the public good.
Rather than making hard choices about whose political favors to reduce or eliminate, they could effectively be off the hook as long as the pay cuts are less important to them than maintaining and expanding their political power (especially rich, big government types). Deficits could get worse if this dynamic further weakens the remaining constraints on politicians to run deficits.
I could be wrong. It depends on the combination of formal institutions, informal rules of conduct, culture, etc, in Slovakia. Which I know nothing about. So we'll watch and learn.
Still, it wouldn't be near the top of my list of effective ways to constrain government budgets.
