NCPA - National Center for Policy Analysis

Governments And Spending

May 31, 2001

Democracy is spreading throughout the world. However, according to a recent article, the structure of the democracy may have profound influences on government spending.

Most democracies in Europe have parliamentary systems where the chief executive, or prime minister, is chosen by the elected legislature. The other form of democracy is the presidential democracy. In these governments - such as those in the U.S. and Mexico -- the chief executive, or president, is elected independently of the legislature. Parliamentary governments have greater legislative cohesion, because parties must join in alliances to gain a majority and choose a prime minister. Presidential-congressional democracies have a greater separation of powers since the legislature and president can be from opposing parties.

Because parliamentary systems require party alliances, smaller parties may extract concessions from the prime minister, because he needs the smaller parties to maintain their power. To satisfy all the partners, the prime minister must engage in large amounts of spending, which requires higher taxes. On the other hand, the separation of power in presidential governments stalls legislative initiatives, demands less spending and consequently less taxation.

The results are significant:

  • The average parliamentary regime spends 37 percent of its gross domestic product, while presidential regimes spend 20 percent of their GDP on average.
  • In other words, parliamentary regimes spend 17 to 18 percent more of their GDP then presidential regimes.
  • Even accounting for other differences between countries, spending by parliamentary governments is 10 percentage points of GDP higher than presidential governments.

The different government structures in Europe and the United States may explain the different spending levels per GDP.

Source: "Political Regimes," Economic Intuition, Winter 2001; based on Torsten Persson, Gerard Roland and Guido Tabellini, "Comparative Politics and Public Finance," Journal of Political Economy, December 2000.

 

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