THE COMPOSITION OF GOVERNMENT EXPENDITURE: ECONOMIC CONDITIONS AND PREFERENCES |
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| Authors: | JOHN CREEDY SHUYUN MAY LI SOLMAZ MOSLEHI |
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| Institution: | 1. Creedy: Professor, Department of Economics, University of Melbourne, Victoria 3010, Australia. Phone 61‐3‐83445336, Fax 61‐3‐83446899, E‐mail jcreedy@unimelb.edu.au;2. Li: Lecturer, Department of Economics, University of Melbourne,Victoria 3010, Australia. Phone 61‐3‐83445316, Fax 61‐3‐83446899, E‐mail shuyunl@unimelb.edu.au |
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| Abstract: | This paper examines the question of why the composition of government expenditure differs among democratic countries and to what extent it may be explained by differences in economic conditions or preferences. A simple overlapping generations model, which allows for a range of relevant factors, is constructed to examine the division of expenditure on public goods and a transfer payment under majority voting. The model yields a closed‐form solution for the majority choice of the expenditure ratio. An empirical examination suggests that income inequalities play a minor role while different preferences for public goods reflecting cultural differences across countries may play an important role in accounting for the substantial variations in expenditure patterns. (JEL D72, H41, H53, H11) |
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