SCOPE OF GOVERNMENT: Pre-election politics 3

As the figure illustrates, our assumptions imply that the group which on average is ideologically neutral also has the largest number of ideologically neutral voters.9 It is natural to think of this group as consisting of ” middle class” voters.

We can also use this figure to illustrate how the parties evaluate the announcement of different policies. Suppose party A contemplates a deviation from a common policy announcement qA = qB. Such a deviation alters the number of votes party A can expect, by changing the identity of the swing voters. For example, a lower tax rate t or more public goods g benefit voters in all groups symmetrically. Taken separately, such measures thus push the identity of the swing voter in all groups to the right by the same distance, say to a’, and party A can expect to capture the voters between 0 and a’ in all groups (as the expected value of ± is equal to zero). Similarly, more transfers to group 1, financed by less transfers to group 3, shift the swing voter in group 1 to the right and the swing voter in group 3 to the left by the same distance (recall that we assume the groups to have the same size). This redistribution implies a net gain in votes, as there are more swing voters in group 1 than in group 3; that is, s1 > s3. Finally, higher rents r mean losing votes in all three groups, and a lower probability of winning. As the announced policies must respect the budget constraint, the two parties effectively trade off votes for votes, or rents for votes, when designing their platforms.

SCOPE OF GOVERNMENT: Pre-election politics 2

General features

Consider two parties or candidates, labeled A and B. Before elections take place, these parties commit to policy platforms, qA and qB. They act simultaneously and do not cooperate. The platform of the winning party is implemented. As we emphasize below, the precise conditions for winning depend on the electoral rule. Consider, say, party A. When announcing its policy platform, it maximizes the expected value of rents, namely:

SCOPE OF GOVERNMENT: Pre-election politics

When an assembly of elected politicians take the policy decisions (as in Section 4), these diversions may benefit some politicians more than others, in which case r must be disaggregated. We assume diversions to be associated with some transaction costs (1 — °), such that only °r benefit the politicians. From the voters’ viewpoint, however, these rents constitute pure waste. Thus, not only do we assume politicians to be selfish, but we also assume them to have an opportunity to take advantage of their power. Naturally, equilibrium rents could be very small. But the aspiration of politicians to extract these rents may still shape their decisions in other policy dimensions.

To make the public finance problem more interesting, we could extend the model with a labor supply choice distorted by taxation. Below, we comment on how our results would change in this richer formulation. But even this simple model entails a very rich micro-political problem. There are three conflicts of interest: between different voters (over the allocation of redistributive transfers, {&*}), between voters and politicians (over the size of rents, r), and between different politicians (over the distribution of these rents among themselves). As we shall see, different political systems alter the scope and intensity of these conflicts, basically by inducing more or less competition between politicians or voters.

SCOPE OF GOVERNMENT: A public finance model

The central insight is that a presidential system entails stiffer competition between different voters, as well as between different politicians. Politicians compete more fiercely among themselves because they are held directly and separately accountable by the voters. Compared to a Parliamentary regime, this limits the scope of collusion. As coalitions among politicians are more unstable, voters end up competing more fiercely for the redistributive transfers than in a parliamentary regime. These features imply less spending on every budget item in presidential regimes and, hence, to a smaller size of government. The results in this section were originally derived in a series of joint papers with Gerard Roland (Persson, Roland and Tabellini (1997), (1998a), (1998b)).


What a politician does, once in office, will therefore not only reflect his electoral promises, but also his view of the world. As competing politicians differ in their ideologies or along other important dimensions, they remain imperfect substitutes. Because of this imperfect substitutability, rents are not fully dissipated in the course of electoral competition.

Another important theme of our lecture is that the extent of these political failures depends on political institutions. Intuitively, both the electoral rule and the regime type determine the scope and the intensity of political competition. In general, those regimes that promote more intense competition imply policy choices that internalize the benefits and costs of fewer voters. Those regimes therefore bring about less public good provision. But more competition also brings about smaller rents for the politicians.


The literature on public choice and political economics has provided important insights on the determinants of the size of government— different branches of this literature are surveyed in Frey (1983), Mueller (1989), Mueller (1997) and Persson and Tabellini (1998). But most of this research has not systematically investigated the link between political institutions and public spending, and to the extent that it has, the focus has been on features other than the electoral rule and the regime type.

Political scientists have done much more work comparing political systems, and comparative politics is indeed a well-established subfield in political science. A large body of theoretical, empirical and descriptive research concentrates precisely on electoral rules and regime types. But this work is typically confined to the analysis of political phenomena, such as how the electoral rule affects the number of parties, or how the regime type affects the frequency of political crises, or protests by the citizens.

In this lecture, we try to exemplify how economists may pursue an approach of comparative politics. Like the political scientists, we focus on electoral rules and regime types. But we go beyond the political system, using simple theory to derive specific hypotheses regarding policy choice. We then take some of these hypotheses to the data.


Looking across the countries of the world, we observe a wide variation in the size of government and in the scope of its activities. The white bars in Graph 1 depict total central government expenditures for a number of democratic countries. The data are expressed as a share of GDP and averaged over 1988-92. Countries are grouped by development level—OECD membership, or not—and, among developing countries, by continent. Within groups they are ordered by IMF codes. Evidently, expenditures vary a great deal, both within and between groups.

Much of this variation reflects differences in socio-economic determinants of government expenditure. But large differences remain, even when we control for economic and social variables suggested by economic theory and found to have explanatory power in previous empirical studies. The black bars in the graph show the residuals from a regression of expenditures on (the log of) per capita income, (the log of) openness to international trade, the share of population above 65, and a measure of ethno-linguistic fractionalization. The controls account for a substantial share of the variation (about 60 per cent), and the differences across groups of countries more or less disappear. But striking differences within groups remain, and residuals of plus or minus 10% of GDP are not uncommon. The results are very similar if the set of controls is expanded to include other determinants of spending.



i (2)Table 12 shows that between 1973 and 1991 inequality in the sum of husbands’ and wives’ weekly earnings widened. Because the dispersion in husbands’ hours of work widened as husbands in the highest combined household earnings deciles increased their hours while those in the lowest income deciles decreased their hours, 28 percent of the increase in earnings inequality could be accounted for by increases in the hours of husbands and wives holding wives’ labor force participation constant. Counteracting the increasing dispersion of husbands’ hours worked was the narrowing of dispersion in hours of wives in the labor force and the increase in wives’ labor force participation in low earnings decile households. Once increases in wives labor force participation rates are accounted for then only 17 percent of the increase in earnings inequality among married couples could be accounted for by changes in hours worked.



I have shown that the distribution of hours worked was much less egalitarian in the past than it is today and that much of the change in the inequality of the length of the work day could be explained by declines in the number of hours workers were willing to supply. In the past, in contrast to recent times, the labor supply curve was strongly backwards bending. The backwards bending labor supply curve of the 1890s implies that circa 1890 increases in wages should have led to a decrease in the length of the work day. In fact, between 1890 and 1919 when real wages increased by 43 percent, the work day fell from 10 to 8 hours. The elasticities estimated for 1973 and 1991 are small and between 1973 and 1991 the length of the work day barely changed. If the elasticity of labor supply in 1920 was small as well then that might explain why the length of the work day has remained unchanged since 1920. Recent estimates of the elasticity of daily hours supplied suggest that the average work day is likely to remain constant or even increase.

THE LENGTH OF THE WORK DAY: The Labor Supply Curve

i (1)
Within a life cycle labor supply model, my estimated elasticity of daily hours supplied will be determined by wage changes arising from shifts in the wage profile, changes in the profile slope, and movements along a given lifetime wage profile. Thus not only could the wage profile have changed, but whereas in the 1890s workers may have preferred to take their recreation through reductions in the length of the work day (perhaps because the work day was so long), later generations of workers may have preferred reductions in the length of the work week, work year, and work life. Increased bunching in annual hours worked over the life cycle, among men both in and out of the labor force, is striking. Circa 1900 men’s annual hours were 2641 at ages 45 to 54, 2465 at ages 55 to 64, and 2118 at ages 65 to 74. Between 1940 and 1990, annual hours of men aged 45 to 54 increased from 1732 in 1940 to 1874 in 1960 and then to 1896 in 1990, largely because of the decline in part-year work; among men aged 55 to 64 annual hours fell 1732 in 1940 to 1577 in 1960 and 1291 in 1990. Among men aged 65 to 74 the decline has been particularly pronounced – from 940 hours in 1940 to 590 hours in 1960 and then to 313 hours in 1990.

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