SCOPE OF GOVERNMENT: Introduction 2


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.

We start by formulating (in Section 2) a simple model of public finance. Elected politicians can tax the voters and choose how to allocate the revenue among three alternative uses: to rents benefiting themselves, to a public good benefiting all the voters, or to redistributive transfers benefiting a more narrow group of voters.

Two central assumptions are that politicians are self-interested, and that voters are rational and fully informed. In particular, politicians would like to raise a lot of revenue and spend it on rents for themselves. This view of politics may strike some readers as too cynical. But we think it is a useful methodological approach, since it poses the right questions: What makes politicians behave in the interest of voters? And how does this depend on political institutions? Of course, we are not the first to address these questions. A common opinion is the so called ’’Chicago view”, that political competition between selfish politicians leads to the implementation of efficient policies.

An important theme of our lecture is that this view of the political process is too optimistic. Even with fully informed voters, political equilibria typically exhibit two political failures. First, public goods are under-provided because of redistributive transfers to powerful groups of voters. Intuitively, politicians neglect the interests of some voters, as they only need to please a subset of the voters to win the elections. Second, politicians earn positive rents for themselves, at the voters expense. Intuitively, politicians enjoy considerable discretion once in office, because electoral promises are only verifiable or enforceable in some dimensions of policy.