Populist Fiscal Policy

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...

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Bibliographic Details
Main Authors:	Khemani, Stuti, Wane, Waly
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTING BUDGET CONSTRAINT BUDGET CONSTRAINTS BUDGET DEFICITS BUDGET PROCESS BUYING VOTES CABINET CAMPAIGN CONTRIBUTIONS CENTRAL GOVERNMENT SPENDING COALITION GOVERNMENT COALITION GOVERNMENTS COLLECTIVE ACTION CONFLICT OF INTEREST CONSTITUENCIES CONSTITUENCY CONSTITUENT CONSTITUENTS DEBT DEFICIT FINANCING DEFICITS DEMOCRACIES DEMOCRACY DEMOCRATIC PARTICIPATION DEVELOPING COUNTRIES DEVELOPMENT BANK DEVELOPMENT ECONOMICS DISPOSABLE INCOME DYNAMIC THEORY ECONOMIC EFFICIENCY ECONOMIC GROWTH ECONOMIC POLICIES ECONOMIC RESOURCES ECONOMIC RESTRICTIONS ECONOMICS RESEARCH ELECTION ELECTIONS ELECTORAL POLITICS ELECTORAL SYSTEMS EVASION EXECUTIVE GOVERNMENT EXPENDITURE EXPORTS FISCAL DEFICIT FISCAL DEFICITS FISCAL PERFORMANCE FISCAL POLICIES FISCAL POLICY GDP GDP PER CAPITA GOVERNMENT ACCOUNTS GOVERNMENT BORROWING GOVERNMENT BUDGET GOVERNMENT DEBT GOVERNMENT FINANCE GOVERNMENT POLICY GOVERNMENT SPENDING GROSS DOMESTIC PRODUCT GROWTH RATE HOLDING HUMAN DEVELOPMENT INCOME INCOME TAX INCOME TAXES INEFFICIENCY INSTRUMENT INTEREST PAYMENTS INTERNATIONAL BANK INTERNATIONAL FINANCE LAFFER CURVE LEGISLATORS LEVY LOCAL CURRENCY MACROECONOMICS MARGINAL UTILITY OPTIMIZATION PARLIAMENTARY SYSTEM PARLIAMENTARY SYSTEMS PARLIAMENTS PARTY COMPETITION POLICY IMPLICATIONS POLITICAL DECENTRALIZATION POLITICAL ECONOMY POLITICAL EXECUTIVE POLITICAL EXECUTIVES POLITICAL GROUPS POLITICAL INSTITUTIONS POLITICAL PARTIES POLITICAL PARTY POLITICAL POWER POLITICAL SYSTEM POLITICAL SYSTEMS PRESIDENTIAL ELECTIONS PROGRESSIVE TAXES PROVINCIAL GOVERNMENTS PUBLIC PUBLIC ECONOMICS PUBLIC GOOD PUBLIC GOODS PUBLIC POLICY PUBLIC RESOURCES PUBLIC SERVICES PUBLIC SPENDING PUBLIC SPENDING PROGRAMS REAL GDP REGIONAL DUMMIES TAX TAX RATE TAX RATES TAX REVENUE TAX REVENUES TAX SYSTEM TAXATION TRANSACTION TRANSACTION COSTS TREASURY TURNOVER UTILITIES VOTER TURNOUT VOTERS WELFARE ECONOMICS
Online Access:	http://documents.worldbank.org/curated/en/2008/10/9972031/populist-fiscal-policy http://hdl.handle.net/10986/6893

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Summary:	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.

Populist Fiscal Policy

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