Time Horizons Matter: Coalition Governments, Replacement Risk and the Size of Government in 96 Countries, 1975-2000

Abstract

This study examines how coalition governments affect the size of government, measured by total central government expenditure as a share of GDP. Existing studies suggest that multiparty governments spend more because they have a larger number of parties, greater ideological fragmentation, and more veto players. We demonstrate that coalition governments have shorter time horizons than single party governments and use that finding to motivate a model which shows that coalition governments have greater incentives to increase government spending. Results from several empirical models that are estimated using a sample of 96 countries between 1975 and 2000 provide strong statistical support for the aforementioned theoretical prediction. The estimates that we obtain remain robust in separate subsamples of OECD and non-OECD countries. We also find that alternative political explanations for the level of government spending such as the degree of legislative fragmentation, government partisanship, the number of veto players, and electoral systems (Majoritarian and Proportional Representation) do not have a statistically significant impact on central government expenditure.

Keywords: Government Expenditures, Coalition Government

JEL Classification: H11, H50