THE EFFECTS OF NON-CLEARING LABOR MARKETS ON THE DEMAND FOR PUBLIC SPENDING

The median-voter model suggests the causal sequence: distribution → spending → bureaucracy, whereas the bureaucratic model proposes the chain: bureaucracy → spending → distribution. In the presence of labor-market distortions and underemployment labor contracts, we argue that an initial link must be added to each causal chain; namely, the excess supply of labor in the private sector. Empirical estimates of both the median-voter and bureaucratic models indicate that inter-country differences in per-capita public spinding are an increasing function of differences in wage rates.