Do alternative measures of government result in alternative explanations for government size?

This note extends the work of Borcherding, Ferris and Garzoni (2003) on government size by considering how traditional tests respond to alternative definitions of government size. An error correction format is used to show that a) qualitatively all measures of size perform well, b) government consumption (plus transfers) works best when explaining short run (long run) changes and c) public choice and Kau/Rubin variables often perform differently with respect to the short and long run.

Searching for Keynes: An Essay on the Political Economy of Fiscal Policy, with Application to Canada, 1870-2000 - revised version

Keynes' General Theory (1936) is arguably one of the most important books of the twentieth century. His ideas for stabilizing the aggregate economy have profoundly influenced economic theory as well as popular opinion about what governments can and should do with respect to the business cycle. On the other hand, whether Keynesian theory has substantially altered the course of public policy remains an open question. In this paper we identify the elements required for any investigation of the impact of Keynes' ideas on policy choices and then conduct our own 'search for Keynes', applying an intertemporal spatial voting framework to study the fiscal history of the Government of Canada from 1870 to 2000. The long time series allows the construction of a counterfactual – one of several essential elements - showing what governments would have planned to do ‘after Keynes’, if Keynes' ideas had not in fact been present. Our results suggest that textbook Keynesianism is identifiable in the Canadian data.Keynesianism, spatial voting, permanent versus transitory policy, political equilibrium, liquidity constraints

Growth in the Real Size of Government since 1970

From at least 1893 economists have viewed income as an important determinant of government size and the hypothesis that government size increases with income is now enshrined in the literature as Wagner’s Law. More recently, however, public choice economists and growth theorists have tended to reverse that causality by questioning whether government size is a constraint on (or promulgator of) economic growth. Typically, increases in government size arising from increased consumption are viewed as constraints on growth, while increases in size that arise from government investment are viewed as positive in their effect on growth. In this paper we are concerned with the two-way interrelationship between government size and income growth highlighted by these separate literatures and investigate this relationship in three distinct stages. In the first part of the paper we set out what has actually happened to the real size of government for twenty OECD countries over the period since 1970 and survey some of the newer factors and approaches used to explain its more recent evolution. The second part re-estimates the parameters of the demand curve for government allows us to speculate whether the changing pattern of government growth represents a break in the structure of the model determining government size or, more simply, represents a change in the variation of the underlying variables. We find that the same model works at least as well as it did in earlier periods with coefficients that are close to their earlier estimates. We follow this by estimating a simple growth model that highlights the size of government consumption in relation to income and output growth for the same countries over the same time period. Increases in size do appear to constrain economic growth. The third part of our paper recognizes that while each of the two causal relationships has received considerable attention in their own right, less attention has been given to effecting a separation of their co-mingled effects. To do so, we estimate the two relationships simultaneously in the context of our panel. This allows us assess whether ignoring the simultaneity of the two-way relationship seriously biases the measure of either the income effect (in determining government size) and/or the measure of government’s effect on economic growth when each are estimated separately. While our discussion suggests that single equation estimates of the income elasticity in Wagner’s Law may have been biased upwards (in absolute terms) and the constraining effect of government size on growth biased downwards, our three stage estimates finds only modest support in the data. The paper concludes by exploring the interrelationship between government size and government regulation. In particular, we test the hypothesis that the appearance of slower growth in government side is due to the increased substitution of indirect control of private production for direct governmental output. On cross sectional data, we find the opposite. In our sample, larger government size is associated with more rather than less regulation.

Political Competition and Convergence to Fundamentals: With Application to the Political Business Cycle and the Size of Government

We address the problem of how to investigate whether economics, or politics, or both, matter in the explanation of public policy. The problem is first posed in a particular context by uncovering a political business cycle (using Canadian data for 130 years) and by taking up the challenge to make this fact meaningful by finding a transmission mechanism through actual public choices. Since the cycle is in real growth, and it is reasonable to suppose that public expenditure would be involved, the central task then is to investigate the role of (partisan and opportunistic) political factors, as opposed to economic fundamentals, in the evolution of government size.We proceed by asking whether the data allow us to distinguish between the convergence and the nonconvergence hypotheses. Convergence means that political competition forces public spending to converge in the long run to a level dictated by endowments, tastes and technology. Nonconvergence is taken to mean that political factors other than the degree of political competition prevent convergence to that long run. The general idea here, one that may be applied in any situation where the key issue is the role of economics versus politics over time, is that an overtly political factor can be said to play a distinct role in the evolution of public choices if it can be shown to lead to departures from a dynamic path defined by the evolution of economic fundamentals in a competitive political system.public expenditure, size of government, long run versus short run, opportunism, partisanship, political competition, cointegration

On the Structure of the Political Party System in Indian States, 1957-2013

What accounts for the large and ever-changing number of political parties that contest Indian state elections? In this paper we examine this question by testing an equilibrium model of political party numbers where the number of parties depend on the average size of state constituencies, voter turnout, the heterogeneity of the state’s electorate, constitutional and legislative rules that directly affect party numbers and per capita state incomes while controlling for a series of discrete political events that have influenced political parties. The analysis compares this model with one explaining the effective number of parties (ENP) and extends the analysis to consider the effect of political factors such as the openness and competitiveness of the upcoming election on the timing of the decision of political parties to enter and exit (and thus the rate of political party turnover). The analysis is further extended by allowing the level of development to interact with their party structures

Competitive Bank Monies: Reconsidering Hayek and Klein from a Transactions Perspective

In this paper the case made by Klein (1975) and Hayek (1976) for competitive bank monies is reconsidered. To do so we build a model of the demand for bank money that derives from money’s ability to separate commodity purchases from sales across time and so avoid the trading costs implied by barter and the double coincidence of wants. Such a model allows us to view the bank cheating or time inconsistency problem alleged to undermine the case for free banking as part of a larger concern with the creation and maintenance of bank quality in a competitive banking environment. As such it helps to further refine the circumstances under which competition is and is not consistent with optimal money provision and stable money prices

What Happens When Voting Rules Change? The Case of New Zealand

This paper examines the impact of New Zealand’s 1996 adoption of a mixed member proportional (MMP) voting scheme on representation in the legislature, voter turnout, vote volatility and the likelihood of an incumbent party winning re-election. I then consider whether MMP has had any negative consequences for the effectiveness of government policy in relation to fiscal accountability and countercyclical intervention. The data used in the analysis begins from the formation of the party system in New Zealand (in 1890) and extends through the adoption of MMP to the present (2017). The data set covers 42 elections: 34 before 1996 and 8 after