Political Competition and Convergence to Fundamentals: With Application to the Political Business Cycle and the Size of the Public Sector

37 Pages Posted: 2 Nov 2005

See all articles by J. Stephen Ferris

J. Stephen Ferris

Carleton University - Department of Economics

Soo-Bin Park

Carleton University - Department of Economics

Stanley L. Winer

Carleton University - School of Public Policy and Administration; Carleton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 20, 2005

Abstract

We address the problem of how to investigate whether economics, or politics, or both, matter in the explanation of public policy. We first pose the problem in a particular context by uncovering a political business cycle (using Canadian data covering 130 years), and by taking up the challenge to make this fact meaningful by finding a transmission mechanism through actual public choices. Since the cycle is in real growth and it is reasonable to suppose that public expenditure would be involved, we then focus on empirical investigation of the role of (partisan and opportunistic) political factors, as opposed to economics, in the evolution of government size. We ask whether the data allow us to distinguish between the convergence and the nonconvergence hypotheses. Convergence means that political competition forces public spending to converge in the longer run to a level dictated by endowments, tastes and technology. Nonconvergence is taken to mean that political factors other than the degree of political competition prevent convergence to that long run. The general idea is that a political factor can clearly be said to play a role in the evolution of public choices if it can be shown to lead to departures from a dynamic path defined by economic fundamentals in a competitive political system.

The results of applying cointegration and error correction modeling to implement this idea show that public expenditure cannot serve as the required transmission mechanism. Of the political factors considered, only variation in the degree of political competition leads to substantial departures of public expenditure from its long run path defined by economic fundamentals. We conclude with some general implications of the analysis for future research.

Keywords: public expenditure, size of government, long run versus short run, opportunism, partisanship, political competition, cointegration

JEL Classification: H1, H3, H5

Suggested Citation

Ferris, J. Stephen and Park, Soo-Bin and Winer, Stanley L., Political Competition and Convergence to Fundamentals: With Application to the Political Business Cycle and the Size of the Public Sector (October 20, 2005). Available at SSRN: https://ssrn.com/abstract=833864 or http://dx.doi.org/10.2139/ssrn.833864

J. Stephen Ferris (Contact Author)

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

HOME PAGE: http://www.carleton.ca/~sferris/

Soo-Bin Park

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

Stanley L. Winer

Carleton University - School of Public Policy and Administration ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
613-520-2600 x2630 (Phone)
613-520-2551 (Fax)

HOME PAGE: http://www.carleton.ca/winer

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
613-520-2600 ex.2630 (Phone)
613-520-2551 (Fax)

HOME PAGE: http://www.carleton.ca/winer

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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