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A Rational Theory of Government Size
Abstract
In a general equilibrium model of a labor economy, the size of government, measured by the share of income redistributed, is determined by majority rule. Voters rationally anticipate the disincentive effects of taxation on the labor-leisure choices of their fellow citizens and take the effect into account when voting. The share of earned income redistributed depends on the voting rule and on the distribution of productivity in the economy. Under majority rule, the equilibrium tax share balances the budget and pays for the voters' choices. The principal reasons for increased size of government implied by the model are extensions of the franchise that change the position of the decisive voter in the income distribution and changes in relative productivity. An increase in mean income relative to the income of the decisive voter increases the size of government.
... The third hypothesis -financial synchronizationwas primarily put forth by Musgrave (1966), Meltzer and Richard (1981). According to this theory, governments might alter taxes and spending at the same time. ...
Purpose: The relationship between public expenditure and revenue that determines the budget balance in the explanation of budget deficits is very important. This study aimed to examine the association between public spending and income in Turkey. Methodology: This article applies the continuous wavelet transform method (CWT) to study the relation-ship between government revenues and expenditures in Turkey. The study, which covers the period 2006-2020, consists of monthly data. The following four CWT tools were used in the analysis: Wavelet Power Spectrum, Cross Wavelet Power, Wavelet Coherence, and Phase Difference. Results: The results of the study, controlling taxes rather than expenditures, play a key role in reducing fis-cal deficits in Turkey in the short term. It is revealed that the dynamics of the budget balance in the medium term can be explained by the spend-tax hypothesis and that the tax burden can be alleviated by spending cuts. In the long term, results were obtained that support the spend-tax hypothesis. Conclusion: The paper reveals that taxes play an important role in controlling budget deficits in the short run. It turns out that the dynamics of the budget balance can be explained in the medium term by expendi-ture cuts and then the tax burden can be alleviated. In the long run, implementing fiscal policies based on public spending rather than taxation will be more effective against budget deficits.
Country comparisons, often suffering from unobserved heterogeneity and obscuring subnational variation, dominate the social policy literature. However, the subnational level is better suited to reduce the omitted variable bias. This article distinguishes between social consumption and social investment policies and investigates their determinants at the subnational level. Following the literature across countries, we test the role of incumbent parties’ ideology, but for within-country variation in social policy. Austria is a case in point because states have discretion in social policy (e.g., regarding public childcare and social assistance). Panel regressions covering all nine states in Austria for the years 1991 to 2019 reveal that the cabinet share of Social-Democrats increases social investment spending, while the Christian-Democratic party decreases it, and the populist radical right party reduces expenses for social consumption.
Economic inequality is unevenly distributed across subnational territorial units, and national averages obscure this variability. What explains variations in inequality within countries? This study argues that the type of subnational governing alliance (regressive or progressive) expressed in the composition of government cabinets affects the level of provincial inequality. The study classifies and codes provincial cabinet members according to their economic, political, and social background. These sectors can form part of a progressive (unions, social, and feminist movements) or regressive (agribusiness or large energy companies) alliance. A large-N analysis of original panel data for Argentina between 2003 and 2019 provides empirical support for these claims. The study also analyzes two key cases, Chaco and Corrientes, which show how the different alliances are associated with varying results in inequality. The study concludes by exploring some comparative implications.
How do people perceive the utility of redistribution? Support for redistribution is commonly understood as being determined by self‐interest in a way that is monotonically proportional to expected net transfers. However, this would imply that average support for redistribution is static and unaffected by changes in the distribution of incomes. This study addresses this incongruence by integrating concepts from the literature on redistribution preferences, namely the diminishing marginal utility of income, inequity aversion and loss aversion. These concepts are formalized by making two distinctions regarding redistribution: absolute versus relative utility and gains versus losses. An analysis of the European/World Values Survey suggests that the preferences of the poor are determined by absolute gains, while the preferences of the rich are determined by relative losses. In other words, the poor care about how much they gain from redistribution, while the rich care about the share of their income that they lose from it. The findings have important implications for the relationships among public opinion, economic development and income inequality.
A key concern in high-inequality countries is whether greater tax revenue and progressivity could help to decrease inequality. Studies have shown that while people care about inequality, providing them with information about current levels of inequality or about specific policies has little impact on their preferences for redistribution. These preferences have usually been proxied by their preferences for government spending without any reference to taxation. In this study in Mexico, we take a novel approach by carrying out a randomized intervention in which we provide information related to (i) corruption, (ii) public health, or (iii) public safety. We then ask individuals about their willingness to pay higher taxes, and we ascertain their support for tax progressivity by asking about their preferred tax rates for the rich, the middle-income, and the poor. We find that willingness to pay higher taxes is affected only by the information on corruption and public health (2.56 and 2.89% points in additional taxes, respectively). We find that this information does not increase their preference for tax progressivity.
O presente artigo tem como objetivo compreender a competição partidária no Horário Gratuito de Propaganda Eleitoral, na eleição presidencial brasileira de 2022, a partir da Saliency Theory. Assim, enseja contribuir ao discutir o poder explicativo desta teoria – desenvolvida com foco em manifestos de campanha – na campanha televisiva. Ao mobilizar técnicas de Análise de Conteúdo e de Análise de Redes Sociais, atestamos a extensão do alcance da teoria para o HGPE, espaço em que os partidos tendem, assim como nos manifestos, a enfatizar questões que são vantajosas para eles. Contudo, verificamos que esse alcance não se aplica ao escopo da interação com os oponentes na campanha eleitoral. Assim, não se pode argumentar que a estratégia da “ênfase seletiva” é empregada em detrimento da estratégia de “confrontação”. Explicando tal estratégia através do conceito de interação estratégica, mostramos que a eleição de 2022 configura-se em uma rede com dois espaços de competição: o primeiro ocupado por PT e PL; e o segundo opondo candidaturas da “terceira via” ao PT e ao PL.
While the global economy has witnessed robust economic performance over the past few years, millions of households remain financially deprived. This indicates that universal access to financial services is critical for the global community to achieve the United Nations’ sustainable development goals (SDGs). Although there is a burgeoning body of literature on the nexus between financial inclusion and income inequality, empirical evidence on the contribution of financial inclusion and institutional quality to income inequality remains sparse. This research, therefore, examines the effect of financial inclusion and institutional quality on income inequality in Brazil, Russia, India, China, and South Africa (BRICS) economies from 2004 to 2015. The empirical analysis employed the cross-sectional autoregressive distributed lag (CS-ARDL) and common correlated effects mean group (CCEMG) techniques to obviate cross-sectional dependency and heterogeneity concerns. The empirical outcome demonstrates that financial inclusion promotes income inequality reduction in BRICS economies in the long and short run. Additionally, improvements in institutional quality further enhance the accessibility and usage of financial services by financially excluded individuals, thereby fostering equitable income distribution in the BRICS countries. Based on these findings, BRICS economies need to increase their awareness of the available financial services, effective microfinance, financial capability, and infrastructural access in rural areas to improve financial inclusivity and thus promote equitable income distribution.
JEL Classification D02, D33, E02, G21, O15
In a 2003 article, Karl Moene (University of Oslo) and Michael Wallerstein (Yale University) demonstrated that wealthier citizens tend to support higher spending in social policies directed at the unemployed, while preferring lower spending in policies aimed at the employed. This paper reveals that these findings hinge on two key assumptions: that citizens have a coefficient of relative risk aversion (CRRA) greater than one, and that all citizens face an equal probability of job loss—a presumption which is not necessarily realistic. By incorporating the observation that job security tends to correlate positively with income, we demonstrate that affluent individuals may still advocate for reduced spending in unemployment policies, even when their CRRA exceeds one. Moreover, a significant shift in the distribution of job security—such as during an abrupt economic crisis—might engender greater societal support for these policies, contrary to their previous research. Finally, empirical data from recent Brazilian history provide analytical support for the theoretical assertions presented herein.
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