At first, decentralization has become a major concern in terms of the decision-making structure of fiscal policy. When there are a large number of participants in the decision-making process, each participant may represent only a narrow range of interest groups. Therefore, it may not be easy to reach consensus due to conflicting interests among participants. Indeed, if there is a structured coalition government or a strong bipartisan system, fiscal soundness is likely to be undermined [40]. In addition, there are slight differences in operational definitions, but generally, it is argued that the higher the number of expenditure departments or the larger the size of the Cabinet, the lower the financial performance [41–44]. In addition, there is a tendency for expansion of deficit and debt when there are a large number of effective political parties in the coalition or there is a small share of the ruling party in Parliament [43, 45].

Some have paid attention to access to markets where the government can borrow money [21–24]. Drelichman and Voth [23] attempted to account for the fact that eighteenth-century England, whose financial position was worse than Spain's in the sixteenth century, did not face insolvency. Specifically, England was able to borrow at a lower rate of interest than the market interest rate through financial repression, so the cost of interest was low. Thus, the interest burden on repayment of government bonds could be significantly reduced. Moreover, with financial globalization, the government took notice not only of the domestic market, but also the foreign market. In particular, low-income countries with low financial capacity can reduce the burden of foreign debt by improving access to financial markets due to globalization [13, 22, 24], while developed countries do not have a statistically significant impact of the

In the past, inflation was the main variable of fiscal soundness [25]. Because the national debt is a nominal asset, a slight rise in prices alone can significantly lower the real value of government bonds. However, recently developed countries have guaranteed the independence of the Central Bank in order to prevent inflation risks arising from the arbitrary use of monetary policy. Thus, the importance of monetary policy and inflationary taxation on fiscal soundness has weakened [26]. Especially in the case of European Union countries, it is argued that monetary policy cannot be utilized in accordance with the reality of each country, and thus, it is

As confidence in monetary policy weakened following, the influence of fiscal policy began to be emphasized [26]. The most important variable is the aging population. Aging of the population leads to a reduction in the number of workers who can contribute to public finance, an increase in the burden of care, and an increase in welfare spending for the elderly. This may in turn increase the financial burden of the government and undermine financial stability. However, government spending does positively affect the sustainability of national debt, depending on the sector or the form of expenditures [20, 27]. In terms of financial revenues, Kaplanoglou and Rapanos [27] demonstrate that increasing the progressive tax burden may

Institutional factors identified in the empirical study are divided into two areas: political systems and financial systems. The former is a form of political decision-making [28], such as the electoral system or the political decision-making, and the latter implies a condition that

The influence of elections has been considered important in relation to political institutions [29–35]. Theoretically, as politicians have incentive to increase the likelihood their reelection by using more public spending and debt accumulation. In addition, this may cause financial instability when financial status is arbitrarily adjusted in a strategic act to hinder the ability of the next elected candidate to enact policy. The empirical research also examines the relationship between political change and national debt accumulation, but the results are not constant [36, 37]. Some authors point out that these inconstant results are related to the lack of control over the nature of political systems in each country [38], because the structure of decision-

further argued that there is a limit to the guarantee of financial stability [13, 26].

global capital market on fiscal sustainability [24].

100 Taxes and Taxation Trends

contribute to fiscal sustainability.

restricts the adoption of fiscal policy [28].

making changes the incentives of politicians [39].

*2.1.2. Institutional factors*

The ideological composition of the Cabinet was also affected. The greater the proportion of politicians supporting a left-wing ideology in the Cabinet, the greater the likelihood that the state's fiscal soundness will deteriorate [43]. Traditionally, politicians who support a leftist ideology are relatively supportive of public spending, particularly welfare spending, and have a tolerance for fiscal deficit [46, 47]. However, it is difficult to say with certainty that finances are unstable in the tradition of a representative system. This is consistent with Schmidt [48], who contended that the political composition or ideological differences of a government should not only lead to differences in financial performance, but that the political and economic conditions of each country should also be taken into account. In countries where a social democratic ideology is dominant within the Cabinet, social security spending is generally high, but the level of welfare spending and debt accumulation in these countries has not been high since mid-1970s [48]. While the left wing is generally favorable to a high tax burden and increased public spending, it is also true that differences in the composition of financial and tax systems have played a more important role than ideology in actual history [10].

As mentioned above, the influence of political formulations is limited, and studies focusing on financial systems have recently expanded. Since 1970s, OECD countries have pursued a series of reforms to effectively manage government spending growth and overcome fiscal deficits [49, 50]. In addition, it is necessary to establish a budget system for total budget allocations. In recent empirical studies, the introduction of a top-down budgeting system has had a positive effect on fiscal soundness [27]. In addition, the introduction of explicit fiscal rules has proved effective [51].

The introduction of a fiscal system that controls public expenditures and revenue levels is effective in promoting fiscal soundness, but caution is needed in interpreting it. First, the effectiveness of the fiscal system affects final fiscal performance in combination with the attributes of the political system in each country [52]. Indeed, Hallerberg et al. [32, 33] formulate a centralization index and a rule index for the political system and fiscal policy decision structures to determine their impact on the rate of change in national debt. According to their results, strong fiscal rules in a representative council system and a concentration of decisionmaking power over fiscal policy decisions in a majoritarian system or among mixed-government countries have a statistically significant effect on reducing the national debt ratio.

#### **2.2. Limitations of existing studies and approaches of this study**

There are two limitations in the existing research in identifying the determinants of fiscal sustainability of the welfare state. These are further divided into two dimensions: the measurement of dependent variables and the composition of independent variables.
