On distinguishing between Leviathan and Public Interest governments in a federal state

The purpose of this paper is to derive testable implications for the proposition that provincial governments in a specific federal system are Leviathans, that is, revenue maximizers. The Leviathan model, associated with Brennan and Buchanan (1980) hypothesizes that governments behave like monopolies who seek to maximize their revenue. This model is contrasted with an alternative hypothesis, the Public Interest Theory. A theoretical model of a federal state, based on the Canadian system, is constructed and testable implications are derived. The principal feature of the model is that it is set in the context of a particular game involving the federal government, provincial governments and a consumer. In attempting to model this situation, care has been taken to try to incorporate as many institutional features of the Canadian federal system as possible, while still allowing the model to be somewhat parsimonious. With some modification, the model may be applicable to other countries with similar federal systems.