The Size and Scope of Government: Comparative Politics with Rational Politicians

We try to demonstrate how economists may engage in research on comparative politics, relating the size and composition of government spending to the political system. A Downsian model of electoral competition and forward-looking voting indicates that majoritarian -- as opposed to proportional -- elections increase competition between parties by focusing it into some key marginal districts. This leads to less public goods, less rents for politicians, more redistribution and larger government. A model of legislative bargaining and backward-looking voting indicates that presidential -- as opposed to parliamentary -- regimes increase competition between both politicians and voters. This leads to less public goods, less rents for politicians redistribution, and smaller government. We confront these predictions with cross-country data from around 1990, controlling for economic and social determinants of government spending. We find strong and robust support for the prediction that the size of government is smaller under presidential regimes, and weaker support for the prediction that majoritarian elections are associated with less public goods.

The size and scope of government: Comparative politics with rational politicians

We try to demonstrate how economists may engage in research on comparative politics, relating the size and composition of government spending to the political system. A Downsian model of electoral competition and forward-looking voting indicates that majoritarian - as opposed to proportional - elections increase competition between parties by focusing it into some key marginal districts. This leads to less public goods, less rents for politicians, more redistribution and larger government. A model of legislative bargaining and backward-looking voting indicates that presidential - as opposed to parliamentary - regimes increase competition between both politicians and voters. This leads to less public goods, less rents for politicians, less redistribution and smaller government. We confront these predictions with cross-country data from around 1990, controlling for economic and social determinants of government spending. We find strong and robust support for the prediction that the size of government is smaller under presidential regimes, and weaker support for the prediction that majoritarian election are associated with less public goods.Political economics; Electoral rules; Political regimes; Public finance; Rents; Redistribution

Do Elections Affect the Composition of Fiscal Policy?

This paper investigates the impact of elections on the level and composition of fiscal instruments using a sample of 19 high-income OECD countries that can be characterized as developed, established democracies during the period 1972-1999. We find that elections shift public spending towards current and away from capital expenditures. Moreover, although we find no evidence for an electoral cycle for government deficit and expenditures, we do find a negative effect of elections on revenue. Our results indicate that the fall in revenue in election periods is attributed to a fall in direct taxation. The decomposition of our electoral dummy suggests that fiscal manipulation seems to be concentrated shortly before the elections. Finally, when we distinguish among predetermined and endogenous elections we find that the above results apply only for the predetermined electoral periods while endogenous elections seem to increase the budget deficit and to leave the composition of fiscal policy unaffected.political budget cycles, elections, composition of fiscal policy, quality of public expenditure

Political Institutions and Policy Outcomes: What are the Stylized Facts?

We investigate the effect of electoral rules and political regimes on fiscal policy outcomes in a panel of 61 democracies from 1960 and onwards. In presidential regimes, the size of government is smaller and less responsive to income shocks, compared to parliamentary regimes. Under majoritarian elections, social transfers are smaller and aggregate spending less responsive to to income shocks than under proportional elections. Institutions also shape electoral cycles; only in presidential regimes is fiscal adjustment delayed until after the elections, and only in proportional and parliamentary systems do social transfers expand around elections. Several of these empirical regularities are in line with recent theoretical work; others are still awaiting a theoretical explanation.comparative politics, constitution, fiscal policy, elections, democracies

Political Institutions and Policy Outcomes: What Are the Stylized Facts?

We investigate the effect of electoral rules and political regimes on fiscal policy outcomes in a panel of 61 democracies from 1960 and onwards. In presidential regimes, the size of government is smaller and less responsive to income shocks, compared to parliamentary regimes. Under majoritarian elections, social transfers are smaller and aggregate spending less responsive to income shocks than under proportional elections. Institutions also shape electoral cycles: only in presidential regimes is fiscal adjustment delayed until after the elections, and only in proportional and parliamentary systems do social transfers expand around elections. Several of these empirical regularities are in line with recent theoretical work; others are still awaiting a theoretical explanation.Constitution, politics, presidentialism, electoral rule, government spending

Combinatorial Voting

We study elections that simultaneously decide multiple issues, where voters have independent private values over bundles of issues. The innovation is in considering nonseparable preferences, where issues may be complements or substitutes. Voters face a political exposure problem: the optimal vote for a particular issue will depend on the resolution of the other issues. Moreover, the probabilities that the other issues will pass should be conditioned on being pivotal. We prove that equilibrium exists when distributions over values have full support or when issues are complements. We then study large elections with two issues. There exists a nonempty open set of distributions where the probability of either issue passing fails to converge to either 1 or 0 for all limit equilibria. Thus, the outcomes of large elections are not generically predictable with independent private values, despite the fact that there is no aggregate uncertainty regarding fundamentals. While the Condorcet winner is not necessarily the outcome of a multi-issue election, we provide sufficient conditions that guarantee the implementation of the Condorcet winner. © 2012 The Econometric Society

When Can We Trust Population Thresholds in Regression Discontinuity Designs?

A recent literature has used variation just around deterministic legislative population thresholds to identify the causal effects of institutional changes. This paper reviews the use of regression discontinuity designs using such population thresholds. Our concern involves three arguments: (1) simultaneous exogenous (co-)treatment, (2) simultaneous endogenous choices and (3) manipulation and precise control over population measures. Revisiting the study by Egger and Koethenbuerger (2010), who analyse the relationship between council size and government spending, we present new evidence that these three concerns do matter for causal analysis. Our results suggest that empirical designs using population thresholds are only to be used with utmost care and confidence in the precise institutional setting.Regression discontinuity design, population thresholds, local elections, government spending

Credibility of fiscal policy and politics: an empirical assessment

In this paper we address the measurement and the analysis of credibility in fiscal policy. In many instances fiscal policy as conducted by governments is not perceived as credible, because the targets set forward by the government are often not met. Usually the divergence is on the negative side. Taxes are overestimated and spending is underestimated, leading to a deficit bias and growing indebtedness of governments. This paper focuses on a measure of credibility that builds on the deviations of the actual budget balances from the projections about these balances in the preceding year for 26 EU member states over the period 1999-2009.1 The objective is to extract from these data insights into the credibility of these governments’ fiscal policies and to explain credibility by a number of political determinant

On the Coincidence of the Feedback Nash and Stackelberg Equilibria in Economic Applications of Differential Games

In this paper the scope of the applicability of the Stackelberg equilibrium concept in differential games is investigated. Firstly, conditions for obtaining the coincidence between the Stackelberg and Nash equilibria are defined in terms of the instantaneous pay-off function and the state equation of the game. Secondly, it is showed that for a class of differential games with state-interdependence both equilibria are identical independently of the player being the leader of the game. A survey of different economic models shows that this coincidence is going to occur for a good number of economic applications of differential games. This result appears because of the continuous-time setting in which differential games are defined. In this setting the first movement advantage of the leader may disappear and the both equilibria coincide.Differential games, stationary feedback Nash equilibrium, stationary feedback Stackelberg equilibrium.