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Fixed-term elections are those whose date can not be set by politicians. The US presidential election is perhaps the most prominent example of this. There are also elections, such as that for the Australian House of Representatives, which have a date effectively set by the head of government (so long as it falls within a certain number of years since the previous election).

What are the advantages and disadvantages of these two systems?

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Comparing presidential systems like the US with parliamentary systems like Australia is a bit like comparing apples and oranges. So to attempt to answer the question, it might be useful to provide some context:

It could be argued that all democratically-elected positions have maximum term lengths, but that some have mechanisms that allow elections to be held earlier than originally scheduled.

So, for most parliaments, a maximum term length is specified, but a general election can be called early if the government loses a confidence vote, or (in some countries and states) the prime minister (or equivalent) requests it.

For other elections, there may be an equivalent of a confidence vote (e.g. a petition to hold a recall election), or rules that require an election to be held if an office-holder dies or resigns (as in many legislatures).

In the US, there is no equivalent of a confidence vote because the government does not sit in Congress, as is the case in parliamentary systems, so US general elections can never be held early, and hence are always fixed terms.

So to actually get back to the original question: I would interpret "fixed terms" in this sense as only applying to a parliamentary system which does not allow early general elections.

Allowing the Prime Minister to call an early election means that the government can choose a time when it is popular in the polls, rather than waiting for the end of its term, when it may not be so popular. Whether you regard this as a good thing or not depends on whether you support the current government!

Conversely, not allowing the Prime Minister to do this takes the politics out of things, and allows all parties (including the government) to plan ahead with some certainty.

Most parliaments still allow early general elections if the government loses a confidence vote. The rationale is that, if no party is able to reliably win votes in parliament, they have little chance of convincing parliament to agree to their budget, which is considered an essential part of being a government.

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Minor quibble, "being able to pass legislation, which is an essential part of being a government." I think in the USA at least, would could do with a little less legislation(maybe for each law passed, two are removed or length equivalents). The purpose of government is to protect its citizens. –  user1873 Jan 4 '13 at 21:14
    
@user1873: the US isn't alone in having too many laws :-) You're right about the purpose of government. In addition, in parliamentary systems, a government which is unable to pass its budget is considered to be unable to govern -- so much so that losing a budgetary vote is regarded as being equivalent to losing a confidence vote. –  Steve Melnikoff Jan 4 '13 at 21:32
    
+1 for the edit. Budgets are indeed laws that need to be passed (the government needs to decide how it spends our money after all). –  user1873 Jan 4 '13 at 22:35
    
@user1873: true. Actually, in this case, I'm using "budget" in the sense that it's used in the UK, to mean the Government's proposals for raising money (via the annual Finance Bill), rather than spending it (via appropriation bills). –  Steve Melnikoff Jan 7 '13 at 10:36
    
spend/confiscate whatever. –  user1873 Jan 7 '13 at 14:05
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The advantage is that it prevents the party in power strategically choosing the election timing so that it advantages them.

Now sometimes a party lacks the numbers in parliament for the policies it wants to pass, and parliament ends up deadlocked. If the term is fixed, it prevents the party calling a new election to let the voters settle the issues.

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afaik you can often have anticipated elections (even in FT systems), but never later than the date set… so this answer would only be partially correct. –  Sven Clement Dec 5 '12 at 0:56
    
@SvenClement: What is an anticipated election? –  Casebash Dec 5 '12 at 0:57
    
an election that is held before the set date. Seems to be a european/british term as I cannot find US-sources for it… –  Sven Clement Dec 5 '12 at 0:59
    
@SvenClement: I don't quite understand. All elections need to have a last possible date so that the party can't stay in power indefinitely. If you can hold it early, how is it accurate to call the election fixed term? –  Casebash Dec 5 '12 at 1:02
    
imho (and the WP-article doesn't help) is a FT a system where the date of the next election is already set during or before the current election while in most systems it is only said that the next election needs to happen sometimes during a given period. So FT refers to an exact amount of days, months, years, … while the standard would be to have a somewhat flexible system where the date can be set according to outside factors in a given window of time –  Sven Clement Dec 5 '12 at 1:06
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