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The Size and Composition of Government Spending in Multi-Party Systems

Part of the Studies in Public Choice book series (SIPC,volume 40)

Abstract

This paper explores the structure of party competition across democratic nations and its impact on the size and composition of government spending. The analytical framework expands on the norm of universalism, applies it to multi-party legislatures, and develops several propositions. We examine these propositions empirically using panel data for two samples, OECD countries and a large sample of world countries. The findings for both samples indicate that political fragmentation, usually measured by the number of effective political parties, has a positive relationship with the size of the government, and with subsidies and transfers. The findings also indicate that proportional representation (particularly closed lists proportional voting systems) and parliamentary countries favor higher public expenditures.

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Fig. 6.1

Notes

  1. 1.

    McKenzie (2001) presents an up-to-date and complete survey of the recent literature on the relationship between political institutions and fiscal outcomes.

  2. 2.

    Persson and Tabellini (2000, pp. 11–14) present a good overview of the differences between pre-election and post-election models.

  3. 3.

    Systematic data for some of the political variables used in this paper, mainly the absolute and effective number of parties, are not available for a large number of countries and years and had to be gathered from the individual election results. Other papers, like Persson and Tabellini (2001), have already benefited from these data. Recently, efforts that complement the availability of political data have been undertaken by Seddon et al. (2003) and Clarke et al. (2000).

  4. 4.

    Knight (2004) provides evidence contrary to the minimum winning coalition thesis using data for the U.S. Congress. See Matthews (1960), Ferejohn (1974), Fiorina (1974), and Mayhew (1974) for empirical evidence on congressional decision-making and universalistic outcomes. Collie (1988) offers evidence on the evolution of universalism in the U.S. Congress. Cox and Tutt (1984) present evidence on universalism for the Los Angeles County Board of Supervisors.

  5. 5.

    Universalism is informally known as “pork-barrel politics.” Weingast (1979, p. 249) defines universalism as “the tendency to seek unanimous passage of distributive programs through inclusion of a project for all legislators who want one.” See also Niou and Ordeshook (1985) for a formal elaboration of the norm of universalism.

  6. 6.

    Miller and Oppenheimer (1982) present experimental evidence on the prevalence of universalism in committee decision making.

  7. 7.

    Again, because taxes are uniform across the polity, every citizen pays for the cost of every project whether or not he or she benefits from it. Consequently, every legislator has an incentive to include a project in the spending plan that benefits her constituency. The papers by Weingast (1979) and Shepsle and Weingast (1981) offer thorough explanations of the decision problem faced by the legislator and formal proofs of the stability of the equilibrium.

  8. 8.

    Gilligan and Matsusaka (1995, 2001) examine the 1∕n hypothesis empirically using data on American States in the pre-and post-World War II periods. In American State legislatures, where legislators are selected under a plurality rule from (mostly) single-member constituencies, they find a positive and significant correlation between the size of upper legislative chambers and state government expenditures. They also find that the size of state lower chambers has no systematic effect on spending, an interesting result in its own right.

  9. 9.

    According to the data presented in Table 6.1, the median value among regions ranges from three to 9.5 parties. Important for panel data analysis, the number of parties within countries fluctuates over time. The typically large number of parties is not peculiar to the lower houses of parliaments. More than 50% of bicameral countries had at least six parties represented in the upper chamber.

  10. 10.

    These are only a few of the basic differences that have been raised. A large number of books explain the differences among electoral systems in detail. See, for example, Shugart and Taagepera (1989), LeDuc et al. (1996), Katz (1980), Cox (1997), and Lijphart (1999).

  11. 11.

    Lijphart (1999) presents a thorough summary on the determinants of the number of parties. Other relevant studies include Laakso and Taagepera (1979), Shugart and Taagepera (1989), Palfrey (1989), and Lijphart (1990).

  12. 12.

    Duverger’s work was later complemented by Leys’s (1959) thesis that strategic voting occurs not for the two parties that are in the lead locally, but in favor of the two parties that have the largest number of seats in Parliament, regardless of their local strength. Subsequently, Sartori (1968) argued that a plurality rule would have no effect beyond the district until there are parties that have both nationwide organizations and ideological reputations that command a habitual following in the electorate.

  13. 13.

    Most parties in multiple-party systems are highly undemocratic. Choice of candidates unrestricted to all party members is uncommon. The proportion is rarely more than a third of all members and sometimes is as small as 1% of the total number of members of the party. Representatives in the multiple-party system know that there is a big chance that they will not be able to face a next election if they defy the party line. As Gallagher et al. (1992, p. 134) describe, “In Western Europe, self interest requires politicians to put the party first, last, and always. Outside the party there is no salvation, or at least no career path prospect”.

  14. 14.

    For a thorough analysis regarding party discipline and the bargaining among party leaders, see de Dios (1999, p. 150).

  15. 15.

    For example, if there are four parties each with 25% of the seats, ENPP = 4. If one party has 85% of the seats and the other three parties have only 5% each, ENPP is approximately 1.

  16. 16.

    Adopting the ENPP measure is not unique to our work. For example, Lijphart (1994, p. 70) offers the following assessment: “Because the effective number of parties is the purest measure of the number of parties, because it has become the most widely used measure, because the alternative measures are quite similar to it in most respects, and, last but not least, because it is computationally much simpler than the alternatives, it will be my number-of-parties measure in this study.”

  17. 17.

    In order to calculate the number of parties, we aggregated and considered coalitions to be one party if these coalitions announced an agreement before the election and the candidates ran under the name of the common coalition instead of the individual parties.

  18. 18.

    New Zealand moved to a system where half of the seats are awarded by PR and half are chosen by plurality election in single-member districts. Italy shifted to a modified plurality system in which only 25% of the seats were awarded by PR and the rest by voters in single-member districts. For additional details on the institutional change in the 1990s, see Dahl (1996, p. 189).

  19. 19.

    This assumption is only necessary for this simple model but it is not required for the results to be valid.

  20. 20.

    Note that: (b − c) − m(b − c) = (1 − m)(b − c) > 0) for n > 1. A more general proof, where b is not necessarily greater than c, can be found in Niou and Ordeshook (1985). In their set-up, either institutional constraints or repeated games yield the same universalistic outcome.

  21. 21.

    For example, the number of effective parties increases by one as the share of the seats for four parties represented in the legislature changes from (40,39,11,10) to (25,25,25,25). ENPP equals 3 and 4 respectively.

  22. 22.

    Kontopoulos and Perotti (1999) present a similar fiscal commons model to explain the size of the government by focusing on the number of ministers with spending authority.

  23. 23.

    The alternative to PR systems are mixed systems, which elect some legislators from single-member constituencies and some from multi-member constituencies, and plurality or first-pass-the-post systems that elect every legislator from single-member constituencies. This restrictive rule is the closest to the theoretical models of pre-election politics and the most convenient to use in the empirical analysis.

  24. 24.

    Kunicova and Rose-Ackerman (2005) make a similar argument to explain higher corruption in countries with closed list systems versus open list systems. In their model, in closed list proportional systems politicians are first accountable to the party and then to the voters; therefore elections are not as effective as in plurality systems to constrain individuals. Carey and Shugart (1995) show that under closed-lists formulas politicians’ concern about personal reputation and the incentive to cultivate a personal vote are minimal.

  25. 25.

    The size of the legislature has been shown to affect the size of government in a sample for the American States by Gilligan and Matsusaka (1995), US city governments by Baqir (2002), and in a world sample by Bradbury and Crain (2001). However, Pettersson-Lidbom (2012) finds evidence of a negative relationship between the size of the chamber and public expenditures.

  26. 26.

    Other variables we examined but do not report in the text include: land area, population density, urban population, GDP, Gini coefficient, education, bicameralism, ideology of government, governance indicators, and term limits. We also estimated models with the expenditure and openness variables in log form; again, these made no material difference to the results on our variables of interest.

  27. 27.

    Stein et al. (1999) find a similar correlation between the number of effective parties and government expenditure in a sample of Latin American countries. In their model, an additional effective party increases government expenditure as a share of GDP by 2 percentage points. We note that in the Stein et al. (1999) study, the district magnitude (a variable described in the “pre-election politics” models) is not significantly correlated with the size of the government.

  28. 28.

    The average ENPP for proportional representation countries is 3.9 while the average ENPP for the average majoritarian country is 2.4.

  29. 29.

    This result is consistent with the existence of economies of scale in the provision of public goods. In Sect. 6.4, we show that the coefficient for the log of population is negative with respect to public goods and positive with respect to transfers. A higher importance of transfers in the OECD countries explains the change of signs when compared with the world sample.

  30. 30.

    The average ENPP for proportional representation countries is 3.3 while the average ENPP for the average majoritarian country is 2.2.

  31. 31.

    To check the validity of our results, we ran the same specifications using a variable that proxies our political competition variables from Clarke et al. (2000). This variable, government fragmentation (the probability that two random draws will produce legislators from different parties) and the other control variables remained consistent with the results reported in the text.

  32. 32.

    Adams (1996) finds evidence that platforms and policies are more ideologically diverse even in those cases where the number of parties is fixed and cannot accommodate to the proportionality of the electoral system, as is the case with the Illinois General Assembly during the period 1870–1982.

  33. 33.

    See Cox (1990a,b) for a more detailed analysis on multi-candidate spatial competition.

  34. 34.

    As a further distinction, in a two-party system, constituents are able to hold their specific representative accountable. Under government coalitions, lines of responsibility are blurred and each party attempts to blame its partners for failures while taking credit itself for successes. Katz (1980) exposits this distinction.

  35. 35.

    See Tullock (1994, p. 33).

  36. 36.

    This result is also a consequence of a model where legislators have to choose the amount of time, effort, and political capital they invest in producing pork for their district. Bueno de Mesquita (2002) shows that legislators from multi-member districts invest less time and effort in work related to the specific interest of their district constituents than do legislators from single-member districts.

  37. 37.

    Stratmann and Baur (2002) find empirical evidence of different behaviors across legislators for Germany, where half of the parliamentary seats are awarded from single-member constituencies and the other half through proportional voting. The legislators elected from single-member constituencies tend to choose legislative committees that deal with geographically based affairs while the legislators elected by party lists tend to prefer those committees that deal with broad based policies and transfers.

  38. 38.

    For example, 70 legislators from different parties represent the constituents of Provincia de Buenos Aires, Argentina. In this case, the ignorance of voters is very high and the cost for each representative for not serving the constituency very low. On the other side, the cost of not serving the party is very high. Consequently, legislators form demographically based coalitions instead of geographically based.

  39. 39.

    These results are consistent with the literature summarized in Persson and Tabellini (2000). In particular, Alesina and Wacziarg (1998) offer similar evidence on the positive relationship between openness and government transfers.

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Acknowledgements

We are grateful to Gordon Tullock, Richard E. Wagner, Tyler Cowen, Joe Reid, Thomas Stratmann, and participants at the Public Choice Society Meetings in Charleston, SC, and San Antonio, TX, and seminars at George Mason University, Loyola University, and the Inter-American Development Bank for constructive comments in previous drafts of the paper. Remaining errors are our responsibility. The views and interpretations expressed in this paper are those of the authors and should not be attributed to the Inter-American Development Bank, or to any individual acting on its behalf.

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Appendix

Appendix

See Tables 6.8, 6.9, and 6.10.

Table 6.8 Summary statistics
Table 6.9 Countries included in the empirical work
Table 6.10 Variables and sources of data

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Scartascini, C.G., Crain, W.M. (2021). The Size and Composition of Government Spending in Multi-Party Systems. In: Hall, J., Khoo, B. (eds) Essays on Government Growth. Studies in Public Choice, vol 40. Springer, Cham. https://doi.org/10.1007/978-3-030-55081-3_6

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