An Error Correction Model of the Median Voter?s Demand for Public Goods in Mauritius
AbstractFrom an optimizing framework, the median voter?s demand for public goods is derived and estimated using data pertaining to the economy of Mauritius over the period 1970-1999. Empirical findings reveal that a long run relationship exists between the quantity demanded of public goods and the income of the median voter, the latter's perceived tax price (for these goods) and overall population. Public goods are found to be basic necessities rather than luxury goods. Moreover, the rising number of beneficiaries generates an increase in the demand for public goods, though not in a manner that would substantiate the congestion hypothesis. A disaggregation of the temporal elasticities through the formulation of an Error Correction Mechanism indicates that, while in the short run, it is basically the perceived tax-price variable which predominates, in the long run, all the three variables ? price, income and population become significant in influencing the median voter's demand. A major policy implication emanating from these findings is it may be necessary but not sufficient to curb public spending by simply eliminating fiscal deficits.
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Bibliographic InfoArticle provided by Economic Issues in its journal Economic Issues.
Volume (Year): 8 (2003)
Issue (Month): 2 (September)
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- Sobhee, S. K., 2004. "The Causality between Taxes and Public Expenditure in Mauritius,1970-1999: A VECM Approach," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 1(3), pages 115-130.
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