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)).

In Section 5, we then confront the specific hypotheses generated by these two models with cross-country data. Using the theory, we classify the democracies in our sample according to their electoral rule and regime type. On the whole, the empirical results are very encouraging. We find strong and robust evidence that, ceteris paribus, governments are indeed smaller in presidential regimes as the theory suggests. We also find some support for the hypothesis that majoritarian elections are associated with lower supply of public goods.

Section 6 ends with some remarks on where to go next.

A public finance model

Consider a society with three distinct groups of voters, denoted by i = 1, 2, 3. Each group has a continuum of voters with unit mass. The preferences over government policy are identical for every member of group i and given by the quasi-linear utility function:
The component r reflects (endogenous) “rents” to politicians and it is a deliberate object of choice. As discussed in Persson, Roland and Tabellini (1997), we can think of r as an outright diversion of resources, such as corruption or party financing, or more generally as an allocation of resources that benefits the private agenda of the politicians but appears as an inefficiency for the voters.