The political economy of public spending composition: evidence from a panel of OECD countries

Abstract

We evaluate the influence of political and institutional features in public spending and its functional composition, by focussing on political actors’ preferences, both opportunistic and partisan, as well as on institutional arrangements as political fragmentation, the electoral system and the political regime. We use a dataset covering 23 OECD countries from 1970 to 2004. Empirical evidence supports the opportunistic approach in the sense that governments tend to engage in fiscal policy manipulation in order to win the next parliamentary election. This pre-electoral manipulation seems to be stronger in new democracies and under center and left-wing governments. There is, however, no evidence of pure partisan behavior. Furthermore, political fragmentation, with regard to both the government and the parliament, seems to favor fiscal indiscipline, particularly on social items.public spending; functional composition; political economy