The Composition of Government Expenditure: Economic Conditions and Preferences
University of Melbourne - Department of Economics
Shuyun May Li
University of Melbourne
Monash University - Faculty of Business and Economics
October 25, 2010
Economic Inquiry, Forthcoming
This paper examines the question of why the composition of government expenditure differs among democratic countries and to what extent it may be explained by differences in economic conditions or preferences. A simple overlapping generations model, which allows for a range of relevant factors, is constructed to examine the division of expenditure on public goods and a transfer payment under majority voting. The model yields a closed-form solution for the majority choice of the expenditure ratio. An empirical examination suggests that income inequalities play a minor role while different preferences for public goods reflecting cultural differences across countries may play an important role in accounting for the substantial variations in expenditure patterns.
Accepted Paper Series
Date posted: October 26, 2010
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