Modelling the composition of government expenditure in democracies

John Creedy and Solmaz Moslehi

European Journal of Political Economy, 2009, vol. 25, issue 1, pages 42-55

Abstract: This paper considers majority voting over the ratio of transfer payments to per capita expenditure on public goods. A model is constructed in which individuals vote for government expenditure on a public good, for a given income tax rate. Labour supply is endogenous. The equilibrium ratio of transfers to public good expenditure is a function of the ratio of median to mean wages and the tax rate. Cross-sectional regressions confirmed that reductions in the skewness of the wage rate distribution are associated with reductions in transfer payments relative to public goods expenditure, at a decreasing rate. Increases in the tax rate initially increase the importance of transfer payments but eventually tax rate increases lead to lower transfers.

Keywords: Median; voter; Public; goods; Transfer; payment (search for similar items in EconPapers)
Date: 2009
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Related works:
Working Paper: Modelling the Composition of Government Expenditure in Democracies (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:poleco:v:25:y:2009:i:1:p:42-55

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