Populist Fiscal Policy

50 Pages Posted: 20 Apr 2016

See all articles by Stuti Khemani

Stuti Khemani

World Bank; World Bank - Development Research Group (DECRG)

Waly Wane

World Bank

Date Written: October 1, 2008


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.

Keywords: Parliamentary Government, Public Sector Economics & Finance, Debt Markets, Economic Theory & Research, E-Government

Suggested Citation

Khemani, Stuti and Wane, Waly, Populist Fiscal Policy (October 1, 2008). World Bank Policy Research Working Paper No. 4762. Available at SSRN: https://ssrn.com/abstract=1293175

Stuti Khemani (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/skhemani

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
Washington, DC 20433
United States

Waly Wane

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/wwane

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