Populist Fiscal Policy

Political economy explanations for fiscal profligacy are dominated by models of bargaining among organized interest groups over group-specific targeted benefits financed by generalized taxation. These models predict that governments consisting of a coalition of political parties spend more than single-party regimes. This paper presents an alternative model-that of populist pressure on political parties to spend more on the general public good, financed by costly income taxation-and obtains the opposite prediction. According to this model, public spending and taxes are lower under coalition governments that can win elections more cheaply. Indeed, in order to win elections, coalition partners need to satisfy a smaller share of swing voters than does a single-party government that enjoys narrower support from its core constituency. A coalition government therefore spends less on the public good to capture the share of the swing vote necessary for re-election. Using data from more than 70 countries during the period 1970-2006, the paper provides robust supporting evidence for this alternative model.

Bibliographic Details

Main Authors:	Khemani, Stuti, Wane, Waly
Language:	English
Published:	World Bank, Washington, DC 2008-10
Subjects:	ACCOUNTING, BUDGET CONSTRAINT, BUDGET CONSTRAINTS, BUDGET DEFICITS, BUDGET PROCESS, BUYING VOTES, CABINET, CAMPAIGN CONTRIBUTIONS, CENTRAL GOVERNMENT SPENDING, COALITION GOVERNMENT, COALITION GOVERNMENTS, COLLECTIVE ACTION, CONFLICT OF INTEREST, CONSTITUENCIES, CONSTITUENCY, CONSTITUENT, CONSTITUENTS, DEBT, DEFICIT FINANCING, DEFICITS, DEMOCRACIES, DEMOCRACY, DEMOCRATIC PARTICIPATION, DEVELOPING COUNTRIES, DEVELOPMENT BANK, DEVELOPMENT ECONOMICS, DISPOSABLE INCOME, DYNAMIC THEORY, ECONOMIC EFFICIENCY, ECONOMIC GROWTH, ECONOMIC POLICIES, ECONOMIC RESOURCES, ECONOMIC RESTRICTIONS, ECONOMICS RESEARCH, ELECTION, ELECTIONS, ELECTORAL POLITICS, ELECTORAL SYSTEMS, EVASION, EXECUTIVE GOVERNMENT, EXPENDITURE, EXPORTS, FISCAL DEFICIT, FISCAL DEFICITS, FISCAL PERFORMANCE, FISCAL POLICIES, FISCAL POLICY, GDP, GDP PER CAPITA, GOVERNMENT ACCOUNTS, GOVERNMENT BORROWING, GOVERNMENT BUDGET, GOVERNMENT DEBT, GOVERNMENT FINANCE, GOVERNMENT POLICY, GOVERNMENT SPENDING, GROSS DOMESTIC PRODUCT, GROWTH RATE, HOLDING, HUMAN DEVELOPMENT, INCOME, INCOME TAX, INCOME TAXES, INEFFICIENCY, INSTRUMENT, INTEREST PAYMENTS, INTERNATIONAL BANK, INTERNATIONAL FINANCE, LAFFER CURVE, LEGISLATORS, LEVY, LOCAL CURRENCY, MACROECONOMICS, MARGINAL UTILITY, OPTIMIZATION, PARLIAMENTARY SYSTEM, PARLIAMENTARY SYSTEMS, PARLIAMENTS, PARTY COMPETITION, POLICY IMPLICATIONS, POLITICAL DECENTRALIZATION, POLITICAL ECONOMY, POLITICAL EXECUTIVE, POLITICAL EXECUTIVES, POLITICAL GROUPS, POLITICAL INSTITUTIONS, POLITICAL PARTIES, POLITICAL PARTY, POLITICAL POWER, POLITICAL SYSTEM, POLITICAL SYSTEMS, PRESIDENTIAL ELECTIONS, PROGRESSIVE TAXES, PROVINCIAL GOVERNMENTS, PUBLIC, PUBLIC ECONOMICS, PUBLIC GOOD, PUBLIC GOODS, PUBLIC POLICY, PUBLIC RESOURCES, PUBLIC SERVICES, PUBLIC SPENDING, PUBLIC SPENDING PROGRAMS, REAL GDP, REGIONAL DUMMIES, TAX, TAX RATE, TAX RATES, TAX REVENUE, TAX REVENUES, TAX SYSTEM, TAXATION, TRANSACTION, TRANSACTION COSTS, TREASURY, TURNOVER, UTILITIES, VOTER TURNOUT, VOTERS, WELFARE ECONOMICS,
Online Access:	http://documents.worldbank.org/curated/en/2008/10/9972031/populist-fiscal-policy https://hdl.handle.net/10986/6893
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