Modelling the Composition of Government Expenditure in Democracies
This paper considers whether the ratio of transfer payments to expenditure on public goods in democracies can be explained as the outcome of majority voting. A simple model is constructed in which individuals vote for government expenditure on a public good, for a given income tax rate. The transfer payment is then determined by the government’s budget constraint. The equilibrium ratio of transfers to public good expenditure per person is expressed as a quadratic function both of the ratio of the median to the mean wage, and of the tax rate. Data for 29 democratic countries are used to estimate a cross-sectional regression. The empirical results confirm 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. Furthermore, increases in the tax rate, from relatively low levels, are associated with increases in the relative importance of transfer payments. But beyond a certain level, further tax rate increases are associated with a lower ratio of transfers to public goods.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia|
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
Web page: http://fbe.unimelb.edu.au/economics
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shelton, Cameron A., 2007. "The size and composition of government expenditure," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2230-2260, December.
- Grossmann, Volker, 2003.
"Income inequality, voting over the size of public consumption, and growth,"
European Journal of Political Economy,
Elsevier, vol. 19(2), pages 265-287, June.
- Volker Grossmann, 2002. "Income Inequality, Voting Over the Size of Public Consumption, and Growth," CESifo Working Paper Series 731, CESifo Group Munich.
- Rainald Borck, 2005.
"Voting, Inequality, and Redistribution,"
Discussion Papers of DIW Berlin
503, DIW Berlin, German Institute for Economic Research.
- Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
- Jo Thori Lind, 2005. "Why is there so little redistribution?," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 31, pages 111-125.
- Tuomala, Matti, 1985. " Simplified Formulae for Optimal Linear Income Taxation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(4), pages 668-72.
- Alberto Alesina & Guido Tabellini, 1988.
"Voting on the Budget Deficit,"
NBER Working Papers
2759, National Bureau of Economic Research, Inc.
- Alesina, Alberto F & Tabellini, Guido, 1988. "Voting on the Budget Deficit," CEPR Discussion Papers 269, C.E.P.R. Discussion Papers.
- Tabellini, Guido & Alesina, Alberto, 1990. "Voting on the Budget Deficit," Scholarly Articles 4553030, Harvard University Department of Economics.
- Guido Tabellini & Alberto Alesina, 1988. "Voting on the Budget Deficit," UCLA Economics Working Papers 539, UCLA Department of Economics.
- Cameron A. Shelton, 2007. "The Size and Composition of Government Expenditure," Wesleyan Economics Working Papers 2007-002, Wesleyan University, Department of Economics.
- Hassler, John & Storesletten, Kjetil & Zilibotti, Fabrizio, 2003.
"Democratic Public Good Provision,"
CEPR Discussion Papers
4044, C.E.P.R. Discussion Papers.
- Harms, Philipp & Zink, Stefan, 2003. "Limits to redistribution in a democracy: a survey," European Journal of Political Economy, Elsevier, vol. 19(4), pages 651-668, November.
- Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
- Bearse, P. & Glomm, G. & Jeneba, E., 1999.
"Composition of Government Budget, Non-Single Peakedness and Majority Voting,"
9903, Michigan State - Econometrics and Economic Theory.
- Bearse, Peter & Glomm, Gerhard & Janeba, Eckhard, 2001. " Composition of Government Budget, Non-single Peakedness, and Majority Voting," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(4), pages 471-81.
- Jose-Victor Rios-Rull & Per Krusell, 1999.
"On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model,"
American Economic Review,
American Economic Association, vol. 89(5), pages 1156-1181, December.
- Per Krusell & Jose-Victor Rios-Rull, 1997. "On the size of U.S. government: political economy in the neoclassical growth model," Staff Report 234, Federal Reserve Bank of Minneapolis.
- Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753, Junio.
- Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
- Galasso, Vincenzo, 2003. "Redistribution and fairness: a note," European Journal of Political Economy, Elsevier, vol. 19(4), pages 885-892, November.
- Tridimas, George & Winer, Stanley L., 2005. "The political economy of government size," European Journal of Political Economy, Elsevier, vol. 21(3), pages 643-666, September.
- Marina Azzimonti & Eva de Francisco & Per Krusell, 2006. "Median-voter Equilibria in the Neoclassical Growth Model under Aggregation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 587-606, December.
- Hassler, John & Krusell, Per & Storesletten, Kjetil & Zilibotti, Fabrizio, 2005. "The dynamics of government," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1331-1358, October.
- Borge, Lars-Erik & Rattso, J.Jorn, 2004. "Income distribution and tax structure: Empirical test of the Meltzer-Richard hypothesis," European Economic Review, Elsevier, vol. 48(4), pages 805-826, August.
- Jean-Robert Tyran & Rupert Sausgruber, 2002.
"A Little Fairness may Induce a Lot of Redistribution in Democracy,"
University of St. Gallen Department of Economics working paper series 2002
2002-30, Department of Economics, University of St. Gallen.
- Tyran, Jean-Robert & Sausgruber, Rupert, 2006. "A little fairness may induce a lot of redistribution in democracy," European Economic Review, Elsevier, vol. 50(2), pages 469-485, February.
- Tridimas, George, 2001. "The Economics and Politics of the Structure of Public Expenditure," Public Choice, Springer, vol. 106(3-4), pages 299-316, March.
When requesting a correction, please mention this item's handle: RePEc:mlb:wpaper:1007. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katherine Perez)
If references are entirely missing, you can add them using this form.