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Is Public Spending Determined by Voter Choice of Fiscal Capacity?

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  • Dudley, Leonard
  • Montmarquette, Claude

Abstract

Previous models of public spending fail to explain why high inflation rates are distributed non-randomly across countries. In the switching-regime specification proposed here, governments tend to resort to inflationary debt monetarization when the spending level chosen by voters exceeds actual revenue capacity. The voter-choice and fiscal-capacity models of earlier studies are special cases of this framework. Using cross country data for 1970, 1975 and 1980, the authors find that the voter-choice specification applies to most industrialized countries, whereas fiscal capacity appears to constrain government spending in most developing countries. High inflation appears to result from shocks that alter a country's fiscal capacity relative to voters' expectations. Copyright 1992 by MIT Press.

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  • Dudley, Leonard & Montmarquette, Claude, 1992. "Is Public Spending Determined by Voter Choice of Fiscal Capacity?," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 522-529, August.
    • Handle: RePEc:tpr:restat:v:74:y:1992:i:3:p:522-29
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    Cited by:

    1. Dudley, Leonard & Montmarquette, Claude, 1999. "Le secteur public : moteur de croissance ou obstruction à l’industrie?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 75(1), pages 357-377, mars-juin.
    2. Zanola, Roberto, 2000. "Public goods versus publicly provided private goods in a two-class economy," POLIS Working Papers 12, Institute of Public Policy and Public Choice - POLIS.
    3. Khalid Saeed & Honggang Xu, 2013. "Infrastructure development as a policy lever for sustainable development," Chapters, in: M. A. Quaddus & M. A.B. Siddique (ed.), Handbook of Sustainable Development Planning, chapter 14, pages 322-356, Edward Elgar Publishing.
    4. Foueka, Romuald, 2009. "Essai de justification de la croissance des dépenses publiques au Cameroun [Attempt to justify the growth of public expenditure in Cameroon]," MPRA Paper 40822, University Library of Munich, Germany, revised 10 Dec 2011.
    5. Claude Montmarquette, 1994. "L'importance relative des gouvernements : causes, conséquences, et organisations alternatives," CIRANO Papers 94c-03, CIRANO.

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