Inefficient households and the mix of government spending

A model is presented in which individuals can vote over government subsidies to a private good and over redistributive taxation. The subsidized good is purchased and shared by couples who act noncooperatively, while possibly being altruistic towards each other. The framework allows a separation of the subsidy policy from redistributive policy. In a majority voting equilibrium the subsidy is used exclusively to correct the individuals' spending pattern. The results suggest that spending on private goods should be an important item in government expenditures when there is strong positive income bias in the political process and/or when household decisions are relatively inefficient.     

The politics of social spending after the Great Recession: The return of partisan policy making

Prior research shows that the effect of partisanship on social expenditure declined over time in Organisation for Economic Co‐operation and Development (OECD) countries. In this article, the author argues that the 2007/2008 recession resulted in the reemergence of partisan policy making in social spending. This was a result of mainstream parties needing to respond to the growing challenge from nonmainstream parties as well as demonstrating that they responded to the economic crisis by offering different policy solutions. Using a panel of 23 OECD countries, the author shows that since the Great Recession, partisan effects on social spending are once again significant. These effects are more likely to be observed where the salience of the Left–Right dimension is higher. In accordance with classic theories of economic policy making, left‐wing governments are more likely to increase social spending when unemployment is higher and right‐wing governments restrain social expenditure when the budget deficit is greater.     

Do elections affect the composition of fiscal policy in?developed, established democracies?

This paper investigates the impact of elections on the level and composition of fiscal instruments using a sample of 19 high-income OECD democracies during the period 1972–1999. We find that elections shift public spending towards current expenditures at the cost of public investment. Although we find no evidence for an electoral cycle for government deficit and overall expenditures, we find a negative effect of elections on revenue attributed to a fall in direct taxation. Our results apply for predetermined electoral periods while endogenous elections seem to increase deficit and leave the composition of fiscal policy unaffected.     

Budgeting Rules and Program Outcomes

It is not efficient for a budget system either to enable excessively frequent changes in programs and tax policies or to be rigid and unresponsive. Program durability is one measure of how a budget system weighs the competing goals of resoluteness and responsiveness. The federal budget has different processes—mandatory and discretionary spending and tax expenditures—each based in separate congressional committees and relying on separate procedures. This article examines the budget systems' durability. One finding is that mandatory spending programs and tax expenditures are more durable than programs backed by discretionary spending. However, while programs targeted to vulnerable populations and supporting long‐term planning, such as in income support and health, might benefit from durability, these programs display shorter durability, not longer. While displaying greater durability, tax expenditures do respond to changes in different economic sectors, based on the changes in spending of other budget systems.     

Presidential campaign expenditures: Evidence on allocations and effects

This paper analyzes the impact of presidential campaign spending on election results. Analyses of expenditures and voting are often plagued by simultaneity between campaign spending and expected vote share. However, game-theoretic models of resource-allocation decisions made by a central actor (i.e., a presidential campaign) suggest that candidates will spend more in close races and in races likely to be pivotal. We provide empirical support for this theory; using Federal Communications Commission data from the 1972 presidential election, we find that expenditures were higher in states where the election was expected to be closer and in states likely to be pivotal. We use these two factors as instruments in a two-stage least squares model to estimate the effect of spending on votes. We find that, contrary to previous theory and research, presidential campaign spending significantly increases a candidate's vote share.     

The effect of school district structure on education spending

This paper develops a theoretical and empirical model of local spending on education that analyzes the effect of institutional structure on education spending. It attempts to determine whether the theory of bureaucratic behavior is consistent with school district spending decisions by testing the hypothesis that the number of school districts in a county has a negative effect on per pupil expenditures. The results are not consistent with the theory, but indicate that a fragmented school district structure serves to increase expenditures.     

Using Panel Data to Determine the Effect of the Americans with Disabilities Act on Per‐Student Public Education Expenditures at the State Level

The purpose of the present study is to determine whether passage of the American with Disabilities Act (ADA) in 1990 resulted in a statistically significant increase in per‐student public education expenditures at the state level. Although numerous studies have estimated educational cost functions, no prior study has examined the impact of the ADA on per capita education spending. The results of the present study are consistent with anecdotal evidence in that enactment of the ADA has had a positive effect on per‐student educational expenditures; this result suggests that legislative mandates may lead to increased government spending. In addition to the ADA, several of the leading determinants of per‐student education spending include population density, per capita income, percentage of the state that is over the age of 65, percentage of state's residents who have a four‐year college degree, percentage of state's residents who are homeowners, and total student population.     

Democracies and Deficits: Prospects for Fiscal Responsibility in Democratic Nations

The financial crisis had significant implications for the fiscal positions of OECD. As nations seek to cope with the economic contraction, budget deficits and debt have risen to near record postwar levels. As the crisis in Europe and other advanced economies has deepened, fiscal consolidation will have to be coupled, and even preceded, by actions to jump‐start crippled economies. Nonetheless, when fiscal consolidation becomes necessary, nations that procrastinate by waiting for a crisis to provide cover for the politically hard choices will pay a steep price indeed both economically and politically. Many in the academic and policy community have raised questions about whether advanced democracies have the political wherewithal to respond to gathering fiscal pressures through early and timely action. Recent fiscal actions in advanced nations suggest that democracies are not doomed to wait for market shocks and crises. Rather, leaders have shown that fiscal sacrifice can be achieved in ways that promote electability. In this article, we discuss the impetus for democratic fiscal actions and the strategies used to gain public support.     

Rights,review, and spending: Policy outcomes with judicially enforceable rights

Abstract. This paper posits that countries with a constitutional right to social security that can be enforced by courts via judicial review will show patterns of spending on social security that are distinct from countries with other constitutional and judicial arrangements. Governments in countries with enforceable rights will be constrained to spend more on transfer programs to avoid censure from the courts. The hypotheses are tested using data from 22 OECD countries using time–series cross–section analysis. The results show that enforceable rights are associated with higher growth rates in social security spending and lower fluctuation in expenditures on social programs, although the amount of GDP spent on social transfers is unaffected by rights. These results are consistent with the idea that governments' spending habits are constrained by positive rights, but rebut the argument that rights lead to economic distortions.     

Another look at the evidence for rational partisan cycles

In presenting evidence in favor of rational partisan cycles, where electoral victories by leftist parties are expected to create temporary expansions and electoral victories by rightist parties are expected to create temporary recessions, Alesina, Cohen, and Roubini (1999) rely upon autoregressive time series intervention regressions. These regressions, however, are not consistent with their model. In this paper, a model is derived which is consistent with the intervention approach in its reduced-form. The differences between the models are highlighted and new empirical estimates are presented on a panel of seven OECD nations, which generally does not support the rational partisan cycle implications.     

Well-Being in the Welfare State: Level Not Higher, Distribution Not More Equitable

The terms well-being and welfare are Often bracketed together, especially well-being and state welfare. The level of well-being is believed to be higher in welfare states, and its distribution more equitable. This theory is tested here in a comparative study of 41 nations from 1980 to 1990. The size of state welfare is measured by social security expenditures. The well-being of citizens is measured in terms of the degree to which they lead healthy and happy lives. Contrary to expectation, there appears to be no link between the size of the welfare state and the level of well-being within it. In countries with generous social security schemes, people are not healthier or happier than in equally affluent countries where the state is less open-handed. Increases or reductions in social security expenditure are not related to a rise or fall in the level of health and happiness either. There also appears to be no connection between the size of state welfare and equality in well-being among citizens of the state. In countries where social security expenditure is high, the dispersion of health and happiness is not smaller than in equally prosperous countries with less social insurance spending. Again, increases and reductions in social security expenditure are not linked with equality in health and happiness among citizens. This counterintuitive result raises five questions: (1) Is this really true? (2) If so, what could explain this lack of effect? (3) Why is it so difficult to believe this result? (4) How should this information affect social policy? (5) What can we learn from further research?     

Procyclical government spending: a public choice analysis

Procyclical government spending occurs when government expenditures increase at a faster rate than income in an economic upturn but fall at a faster rate in a recession. Voracity effects occur when competition for increased spending proves more effective as national income increases. Public choice theory can be applied to describe the distribution of fiscal power across different tiers of government to shed insight into competition for intergovernmental transfers. Politicians have electoral incentives to press for intergovernmental transfers but they also have electoral incentives to signal their ability to manage the economy. With this mix of incentives, the prediction is that intergovernmental transfers will be procyclical and that sub-central government spending will be more procyclical than central government spending. Public choice analysis of pressure for increased public spending predicts a specific pattern of cyclical government spending. This pattern can be observed when analyzing government expenditures in 20 OECD countries between 1995 and 2006.     

Contribution limits and the effectiveness of campaign spending

Much work on the apparent ineffectiveness on incumbent spending in congressional elections has hypothesized that the productivity of incumbent spending is low because incumbents operate on the “flat part” of their election returns function. Differences in campaign spending associated with state campaign finance laws allows for a test of this hypothesis because restrictions on campaign contributions tend to reduce campaign spending. Exploiting cross-state variation in campaign finance laws, this study tests whether campaign expenditures by state House candidates are more productive when candidates are subject to contribution limits. The results show that campaign expenditures by incumbents and challengers are more productive when candidates run in states with campaign contribution limits, as opposed to in states without limits. In states with contribution limits, incumbent spending and challenger spending are equally productive, and spending by both candidates is quantitatively important in increasing their vote shares.     

Strategic fiscal interaction among OECD countries

This paper investigates whether OECD countries compete with each other for mobile factors by using various fiscal (tax-spending) policy instruments. We use a panel dataset of 20 OECD countries over the 1982?C2000 period. Results reveal evidence that international capital inflows (FDI) are affected by fiscal policy at home and abroad. Also, there is evidence that domestic capital tax rates react: (i) positively to changes in capital tax rates in neighboring countries, and (ii) negatively to changes in public investment spending in neighboring countries. In contrast, strategic interdependence over public investment spending decisions is not established.     

Providing Adequate Educational Funding: A State–by–State Analysis of Expenditure Needs

While school finance research and litigation has traditionally focused on the equity of funding across school districts, courts and policy makers are increasingly addressing the adequacy of educational resources. This article reviews recent developments in adequacy research and estimates the additional expenditures required to achieve adequacy across states. Using the cost–adjusted national median of current per–pupil expenditures as a benchmark for adequacy, the results suggest that additional spending of $15.6–18.5 billion is needed nationally to reach the benchmark in all districts. The additional spending would be concentrated in a small number of states, particularly in urban and urban fringe districts.     

Crisis and Response: Treasury Cash Balance Crisis in Thailand 1980-1982

The author traces the treasury cash balance crisis in Thailand from 1980-1982 and finds that the crisis was a result of economic, political and technical factors. The world recession had a significant impact on revenues, as did the inability of the government to accurately project revenues. Politically, budget participants evaded prescribed procedures and resorted to emergency spending, which resulted in expenditures beyond budget planning. The Thai government resorted to borrowing, spending cuts, adjusting corporate tax payments and increasing taxes to cope with the crisis. The author calls for legal reforms to limit discretionary spending.     

A forecasting model for state expenditures

In this study, the median voter model is applied to the problem of predicting state public expenditures in four major categories: human services, elementary and secondary education, higher education, and health services. Demand functions for public services are derived within a formal utility-maximizing model. The resulting model is estimated using time-series data for a representative state and the model is used to predict state spending for fiscal year 1985. The results of the estimation are consistent with the predictions of the median voter model and the forecasts correspond closely to those made by the State Bureau of the Budget. In contrast, a naive autoregressive model of state spending performs poorly.     

Overlapping jurisdictions: Substitutes or complements?

This paper presents a simple model of the demand relationship between the activities undertaken by overlapping governments and uses the framework to estimate the relationship between municipal and county expenditures. The empirical results reveal a complementary relationship between county and city general expenditures; any public sector expansion effects of monopoly power at the county level will therefore be reinforced by greater municipal spending, further expanding the total size of the local public sector. On the other hand, changes in county police and roads expenditures appear to have no strong stable impact on municipal police and roads expenditures, respectively, providing no reinforcing or offsetting municipal spending responses to decisions at the county level.     

Rental Housing Assistance and Health: Evidence From the Survey of Income and Program Participation

Interest in the health impacts of renter housing assistance has grown in the wake of heated national discussions on health care and social welfare spending. Assistance may improve renters’ health by offering (a) low, fixed housing costs; (b) protection against eviction; and (c) access to better homes and neighborhoods. Using data from the Survey of Income and Program Participation and econometric analysis, I estimate the effect of receiving assistance from the public housing or Section 8 voucher programs on low-income renters’ reported health status and spending. Assisted renters spent less on health care over the year than unassisted low-income renters did, after controlling for other characteristics. This finding suggests that assisted housing leads to health benefits that may reduce low-income renters’ need to purchase health services. Voucher holders’ lower expenditures are influenced by their low, fixed housing costs, but public housing residents’ lower expenditures are not explained by existing theory.     

Political geography

I study a model of geopolitical organization endogenizing the size of nations, their public spending and their degree of openness. The optimal geography may not be a stable equilibrium and a bias toward too many countries tends to emerge. An exogenous increase in openness tends to reduce the size of countries but also to increase the size of their public sectors. When openness is endogenous there can be multiple equilibria, some with globalization backlash associated with large nations and small governments and others with smaller countries, bigger governments and high openness. However, stable equilibria may imply excessive globalization, too many countries and too much government spending.