Towards Micropolitical Foundations of Public Finance

by

Torsten Persson, Gérard Roland and Guido Tabellini

Abstract

Observed fiscal policy reflects the incentives embedded in political institutions. In this paper, we illustrate the effects of two general institutional features: separation of powers, which is common in Presidential-Congressional political systems, and legislative cohesion, which is typical of parliamentary systems. Compared to a simple legislative game, separation of powers brings about a smaller size of government and lower waste. Legislative cohesion induces a more equal distribution, but more waste and higher taxes.

Keywords: political economics, comparative politics, rents, incentives.

JEL classification: H1, A1