Keeping It In‐House: Households Versus Population as Alternative Proxies for Local Government Output

Forced amalgamation has been used as a policy instrument in local government by numerous regulatory authorities across the world. A common presumption underlying municipal mergers holds that larger local councils will experience greater economies of scale. However, the empirical evidence on this question is mixed. Part of the reason for this could lie in the frequent use of population as a proxy for local government output in the empirical literature. This paper examines the use of alternative proxies, particularly the number of households but also the addition of business unit data. We demonstrate that household data represents a more accurate proxy of Australian local government output compared to population size. In addition, the paper employs experimental data, conceptual considerations on population, and household dynamics to establish that the number of households represents the most appropriate measure of local government size for both empirical and public policy purposes.     

Does the median voter model explain the size of government?: Evidence from the states

Despite an attempt by its own authors, it is difficult to argue that the influential model of the size of government developed by Meltzer and Richard (1981) has had convincing empirical backing. In this paper, we adapt that model to a model of state government size. The main testable hypothesis is that as income inequality grows, government size (as measured by the percentage of income devoted to government redistribution) grows. We test the model using panel data from the US states from 1979–1991. In contrast to the results found by Meltzer and Richard (1983), we find little evidence to support the model. The results are robust to several model specifications and estimation techniques.     

Costs of taxation and the size of government

Existing theory on the form of government suggests that a parliamentary system promotes a larger size of government than does a presidential system. This paper extends the existing theory by allowing for distortionary taxation. A main result is that if taxation is sufficiently distortionary, the parliamentary system may promote a smaller size of government than the presidential system. The proposed mechanism appears consistent with several empirical patterns in the data that cannot be explained by other theories.     

Leviathan in the Crosshairs

Following in the spirit of the Leviathan hypothesis, this paper empirically examines how the degree of local government market power influences efficiency in the local public sector. Market power is measured by the number and relative size distribution of similar government units in the same market area. To avoid confusing market power with the comparative efficiency or superiority of larger sized organizations, the relative size distribution of the individual government unit is held constant in the empirical analysis. In the empirical test, aggregate property values serve as the measure of efficiency. The empirical results suggest that aggregate property values are lower and thus efficiency suffers, in more concentrated municipal market areas, ceteris paribus, thus providing some evidence for Leviathan-type governments in Connecticut.     

对省级地方政府规模影响因素的定量研究

政府规模是我国推进政府改革进程中值得关注的一个重大课题,对其影响因素的探索对行政体制改革具有重要意义,而目前国内学界对政府规模影响因素的定量研究尚不多见,基本是政府规模问题研究的空白点.从政府规模的概念和影响因素入手,以2003年全国30个省级行政单位(台湾、香港、澳门、西藏除外)为样本,运用SPSS软件对政府规模的影响因素进行定量回归分析,对学界普遍认同的经济发展水平、经济体制、人口因素、地域面积以及民族因素进行考量,发现经济发展水平与中国省级政府规模呈负相关,说明瓦格纳法则并不适用于现阶段的中国;市场化指数与中国省级政府规模呈高度负相关;人口因素与政府规模呈高度负相关.这个结论与我国许多学者的经验观察与主观感受是相反的.地域面积与政府规模呈正相关关系,但在省级行政单位这一层面上影响非常微弱,不像有的学者强调得那样大;少数民族比重与政府规模呈高度正相关,这是一个新的定量研究发现.由此提出:在建立合理、优化的政府规模时,应更多地运用科学的研究方法,探讨其深层次的结构性原因,充分关注不同区域的特殊情况,对症下药地提出相应的改革方案.在推进政治、行政改革时更应慎之又慎,以构建与市场经济大背景相适应的公共服务型政府为基本的价值取向,坚持温和稳健,防止过度激进,坚持理性考察,避免煽情之作,以促进经济发展和社会进步.     

Decentralization as a constraint to Leviathan: a panel cointegration analysis

This paper extends the empirical literature about the effects of fiscal decentralization on the growth of government along three dimensions. It distinguishes between the effects of the level of decentralization from the way local governments finance their expenditures (common pool versus own resources); it uses a panel cointegration approach to separate the long run effects of decentralization from the short run dynamics; and it extends and revises the datasets generally used in these empirical analyses. The results show that the amount of revenue raised by sub-national governments leads to a long-term fall in the size of government but grants have the opposite effect. In addition, a greater decentralization of expenditure leads to greater overall spending. When the short-term is considered these influences work slowly, as the speed of adjustment towards the desired government size is relatively sluggish. In addition, in the short run, there is also a clear effect from the role of local revenue raising powers that stimulates the growth of government. These results appear robust to changes in the composition of the variables, countries and periods included the sample.     

Do jurisdictions compete on taxes? A meta-regression analysis

A sizable empirical literature examines government fiscal interactions. However, the empirical evidence is very mixed. We apply meta-regression analysis to quantify the size of inter-jurisdictional fiscal interactions and to explain the heterogeneity in empirical estimates. Several robust results emerge. While there are significant country differences, tax interactions exist in all countries studied and they are strongest in terms of total tax and weakest in terms of income tax. Interactions differ according to level of government: compared to the municipal level, horizontal tax competition is stronger when the jurisdiction is a county or a nation. We show that tax competition has actually not grown over time and that econometric specifications and estimation strategies influence reported fiscal interactions.     

Are bigger governments better providers of public goods? Evidence from air pollution

Theories explaining government size and its consequences are of two varieties. The first portrays government as a provider of public goods and a corrector of externalities. The second associates larger governments with bureaucratic inefficiency and special-interest-group influence. What distinguishes these alternatives is that only in the former is governmental expansion generally associated with an increase in social welfare. In the latter, the link between government size and public goods provision (or social welfare) is negative. We study the empirical significance of these competing claims by examining the relationship between government size and a particular public good, namely environmental quality (notably, air quality measured by SO₂ concentrations), for 42 countries over the period 1971–1996. We find that the relationship is negative, even after accounting for the quality of government (quality of bureaucracy and the level of corruption). This result may not prove conclusively that the growth of government has been driven by factors other than concern for the public good, but it creates a presumption against the theory of government size that emphasizes public good provision.     

Can't Get No Satisfaction? The Association Between Community Satisfaction and Population Size for Victoria

Traditionally, the problem of determining the optimal size in local government has been empirically assessed by estimating the relationship between population size and the costs of services (usually measured in terms of per capita expenditure). These studies, however, have proved largely inconclusive. In comparison, an empirical analysis based on the relationship between the size of government and community satisfaction offers a potentially fruitful contribution to the debate regarding the optimal size of local government. However, to date, few studies have followed this approach. We therefore contribute to this literature by exploring the relationship between population size and community satisfaction for Victorian councils. Our findings provide evidence of an inverted ‘U‐shaped’ relationship, which predicts low community satisfaction at very large and very small population sizes.     

Determinants of government size: evidence from China

This paper investigates the determinants of government size at the provincial level in China. We employ the panel data model as a platform for empirical analysis and control for endogeneity in the study. Our study shows that openness to trade and foreign direct investment (FDI) may curtail government expansion, and that the provincial-level public sector is characterized by economies of scale. This study also documents that Wagner’s law does not hold true for China. Moreover, both expenditure decentralization and revenue decentralization contribute to the expansion of China’s government.     

The growth effects of fiscal policy in Greece 1960–2000

This empirical paper uses annual data for Greece 1960–2000 to study the link between fiscal policy and economic growth. Our regression analysis implies that, although a smaller public sector can be good for growth, it is necessary to look beyond size; the composition and quality/efficiency of the public sector are equally important. The policy lesson is that a smaller government share in GDP, a reallocation of funds away from the wage bill to public investment, and an improvement in government quality/efficiency can become engines of long-term growth.     

Political and institutional determinants of fiscal policy in the European Community

In recent theoretical and empirical research the variation in political and institutional arrangements which may affect the process of national policy formation is examined, in order to explain cross-country differences with respect to fiscal policies pursued. In this paper we build upon this literature and examine whether and how cross-country differences in debt accumulation and public sector size of Member Countries of the European Community during the 1980s can be explained. We conclude that the growth of government debt is positively related to the frequency of government changes and negatively to sound budgetary procedures. In countries with left-wing governments the growth of the share of government spending in total output generally tends to be higher.     

A Model of Spoils Politics

Accounts of state failure in the developing world frequently highlight a logic of "spoils politics" in which a government and an opposing faction vie for control of the state and the accompanying spoils. Attempts to buy the opposition off play a key role in this logic, and an informational problem often complicates these efforts. Because of limited transparancy, the government generally has a better idea about the actual size of the spoils than the opposition does. We formalize this aspect of spoils politics as a signaling game in which the government has private information about the size of the spoils and tries to co-opt the opposition by offering a share of the spoils. The opposition can accept the offer or reject it by fighting. Consistent with the strong empirical finding that the probability of civil war is higher when income is low, the probability of breakdown increases as the size of the spoils decreases. We also study the effects of uncertainty, the opposition's military strength, the cost of fighting, and power-sharing agreements on the probability of fighting.     

Party system nationalization,presidential coalitions,and government spending

This paper argues that there is a strong relationship between geographical patterns of political parties' electoral performance and the composition of central government expenditures. When party system nationalization is high, the composition of spending will focus more on non-targetable expenditures, while targetable expenditures increase as the party system distribution of votes across different districts becomes less homogenous. However, the effect of party nationalization on spending type is conditioned by the size of the presidential coalition; targeted transfers will increase if the coalition size decreases, even if party nationalization is high. I find support for these hypotheses with an empirical analysis of district-level electoral and government expenditure data for several countries in Latin America between 1990 and 2006.     

Government Expenditure and Quality of Life

Most of the empirical work on the optimal size of the fiscalstate has linked the level of taxation to economic growth. Inthis paper the level of government consumption expenditure thatyields the maximum physical quality of life is found, along withthose expenditures that cause equality between marginal benefitand marginal government expenditure out of GNP. Careful attentionis paid to the measurement of the physical quality of life, theweighing of the attributes in the construction of an aggregateindex of quality of life, and in the functional (parametric) formof the nonlinear equations utilized to calculate marginalbenefit. The conclusion of the paper is that governmentconsumption expenditure is considerably higher than is necessaryto maximize the physical quality of life, and that a reductionin government consumption expenditure would not lower quality oflife.     

Not All Bad News After All? Exploring the Relationship Between Citizens’ Use of Online Mass Media for Government Information and Trust in Government

Mass media coverage of government is often blamed for inciting anti-public sector sentiment. Yet there have been few empirical assessments of these claims. To address this gap in the literature, this study examines whether relationships between citizens’ expectations of public sector performance, satisfaction with public services, and levels of trust in government vary according to their use of online mass media for information about government. Using data collected in 2012 from a survey of 1,100 Seoul citizens, we find that greater use of online mass media to obtain information about government reinforces negative relationships between (1) expectations of public sector performance and satisfaction with public services, and (2) expectations of public sector performance and trust in government. Moreover, the size and strength of the negative indirect relationship between expectations of public sector performance and trust in government increase as respondents use online mass media more frequently for information about government.     

Liberalism and Political Allegiance in Anti-Federalist Political Thought

Disagreement between Federalists and Anti-Federalists over theConstitution hinged largely on empirical expectations regardingthe ability of the proposed system of government to promotecivic allegiance. I examine the views of allegiance offeredby major Anti-Federalists and the political psychology on whichthey are based. I conclude, first, that Anti-Federalist politicalpsychology is flawed, leaving the Constitution's opponents vulnerableto charges made by the authors of The Federalist, among others,that sound functioning and durability of government, ratherthan size, are sufficient to generate civic allegiance. Second,the Anti-Federalists' positions on allegiance are grounded inliberal first principles of government. The arguments offeredare not those one would expect if the Anti-Federalists adheredstrongly to the tenets of civic humanism.     

Coalition Governments Versus Minority Governments: Bargaining Power, Cohesion and Budgeting Outcomes

Recent empirical work investigating the role of minoritygovernments in the selection of fiscal policies has shown thatthe majority status does not affect the budget size. Thispaper presents an analytical framework which accounts for thisresult. It combines a government formation game and a budgetgame involving cabinet and parliament. A general indifferenceresult applies. An exogenous shock to the bargaininigenvironment which absorbes the cohesion of the governmentincreases the demand for expenditures. At the same time theconditions for the formation of a minority government arefulfilled. If the formateur is strong, a minority governmentcan be a device for cutting expenditures.     

Studying the role of political competition in the evolution of government size over long horizons

Here we argue for the use of cointegration and error correction analysis to combine economic factors that are nonstationary with political factors that are stationary into an empirical model of the evolution of public policy over long periods. The approach is applied to disentangle the contributions of economics and politics to the evolution of public expenditure by the Government of Canada over 130 years. Political competition emerges as the primary political factor affecting government size.     

Private sector shrinkage and the growth of industrialized economies: Reply

Further tests and thoughts on the OECD data lead me to conclude that, if anything, my 1986 paper underestimated the magnitude of the inverse relation between economic growth and government size. If one takes the nominal-based measure of government scale, as advised by Saunders, the significance levels, coefficient magnitudes and goodness of fits improve over what I found with my initial investigation. I would suggest that Saunders reconsider his reluctance to believe that the size of the public sector is unrelated to economic growth in OECD countries over this time period.One additional thought appears relevant to the current policy debate concerning budget deficits and economic performance within the major industrialized economies. The empirical work displayed here and in my 1986 paper suggests serious problems associated with the various proposals urging governments to raise taxes and/or ease fiscal policy. Elsewhere, I have suggested that available empirical evidence implies that plans to increase taxes as a way out of budget deficits are plans that carry the potential for raising government spending and possibly future deficits as well. Coupled with the evidence presented here, we should also recognize the potential of tax increases to raise the level of government participation in a country and, accordingly, exert inverse influences on its future economic performance as well. As suggested in my 1986 paper, the empirical evidence may suggest the following irony: While political participants may crave larger and larger non-market resource allocations, their future ability to satisfy that craving may very well be severely constrained by the satisfaction of that same appetite.