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Modelling the composition of government expenditure in democracies

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  • Creedy, John
  • Moslehi, Solmaz

Abstract

This paper considers majority voting over the ratio of transfer payments to per capita expenditure on public goods. A model is constructed in which individuals vote for government expenditure on a public good, for a given income tax rate. Labour supply is endogenous. The equilibrium ratio of transfers to public good expenditure is a function of the ratio of median to mean wages and the tax rate. Cross-sectional regressions confirmed that reductions in the skewness of the wage rate distribution are associated with reductions in transfer payments relative to public goods expenditure, at a decreasing rate. Increases in the tax rate initially increase the importance of transfer payments but eventually tax rate increases lead to lower transfers.

Suggested Citation

  • Creedy, John & Moslehi, Solmaz, 2009. "Modelling the composition of government expenditure in democracies," European Journal of Political Economy, Elsevier, vol. 25(1), pages 42-55, March.
  • Handle: RePEc:eee:poleco:v:25:y:2009:i:1:p:42-55
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    Citations

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    Cited by:

    1. Creedy, John & Gemmell, Norman & Scobie, Grant, 2015. "Pensions, savings and housing: A life-cycle framework with policy simulations," Economic Modelling, Elsevier, vol. 46(C), pages 346-357.
    2. Creedy, John & Li, Shuyun May & Moslehi, Solmaz, 2010. "Inequality Aversion And The Optimal Composition Of Government Expenditure," Macroeconomic Dynamics, Cambridge University Press, vol. 14(S2), pages 290-306, November.
    3. Tetsuo Ono, 2016. "Inequality and the politics of redistribution," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(2), pages 191-217, April.
    4. Momi Dahan & Michel Strawczynski, 2010. "Fiscal Rules and Composition Bias in OECD Countries," CESifo Working Paper Series 3088, CESifo Group Munich.
    5. Ryo Arawatari & Tetsuo Ono, 2015. "Redistributive Politics And Government Debt In A Borrowing-Constrained Economy," Bulletin of Economic Research, Wiley Blackwell, vol. 67(1), pages 83-103, January.
    6. Tetsuo Ono, 2015. "Public education and social security: a political economy approach," Economics of Governance, Springer, vol. 16(1), pages 1-25, February.
    7. John Creedy & Shuyun May Li & Solmaz Moslehi, 2008. "The Composition of Government Expenditure in an Overlapping Generations Model," Department of Economics - Working Papers Series 1043, The University of Melbourne.
    8. Milanovic, Branko, 2010. "Four critiques of the redistribution hypothesis: An assessment," European Journal of Political Economy, Elsevier, vol. 26(1), pages 147-154, March.
    9. John Creedy & Solmaz Moslehi, 2014. "The composition of government expenditure with alternative choicemechanisms," New Zealand Economic Papers, Taylor & Francis Journals, vol. 48(1), pages 53-71, April.
    10. John Creedy & Solmaz Moslehi, 2010. "The Optimal Division Of Government Expenditure Between Public Goods And Transfer Payments," Australian Economic Papers, Wiley Blackwell, vol. 49(2), pages 87-100, June.
    11. John Creedy & Solmaz Moslehi, 2007. "The Optimal Composition of Government Expenditure," Department of Economics - Working Papers Series 1008, The University of Melbourne.
    12. Tetsuo Ono, 2014. "Economic Growth and the Politics of Intergenerational Redistribution," Discussion Papers in Economics and Business 14-17, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    13. John Creedy & Solamz Moslehi, 2010. "The optimal composition of government expenditure among transfers, education and public goods," Hacienda Pública Española, IEF, vol. 194(3), pages 41-64, June.
    14. Agnese Sacchi & Simone Salotti, 2016. "A Comprehensive Analysis of Expenditure Decentralization and of the Composition of Local Public Spending," Regional Studies, Taylor & Francis Journals, vol. 50(1), pages 93-109, January.
    15. John Creedy & Solmaz Moslehi, 2008. "Voting over Taxes and Expenditure: The Role of Home Production," Department of Economics - Working Papers Series 1052, The University of Melbourne.
    16. Tetsuo Ono, 2012. "Inequality Dynamics and the Politics of Redistribution," Discussion Papers in Economics and Business 12-09-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Nov 2013.

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