Elite interests and public spending: Evidence from Prussian cities
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Elite interests and public spending: Evidence from Prussian cities Florian M. Hollenbach1
© Springer Science+Business Media, LLC, part of Springer Nature 2019
Abstract When do economic and political elites demand investment in public goods and services? The prevailing view is that non-democratic governments engage in low levels of government spending and taxation, because elites have interests in low taxation. Non-democracies exhibit significant variation in levels of government spending; the causes of these discrepancies have thus far not been thoroughly examined. I argue that where elites own capital that is conducive to government spending, regimes make higher investments. I test this argument using newly collected data on government spending as well as political and economic characteristics of 110 cities in 19th century Prussia. Using both standard regression models and instrumental variable analysis, I show that the economic needs of the local elites drove local government decisions on public spending. Keywords Public spending · Revenue · Non-democracies · Industrial demand · Fiscal policy JEL Classification H1 · H41 · H72 · H75 · I24 · I25 · I28 · N13 · O14
1 Introduction Education is one of the most important long-term determinants of countries’ development paths and growth trajectories (e.g., Sala-i Martin et al. 2004). We still know relatively little about the origins of public education across the world, however. In particular, why and under what circumstances did public education first originate Electronic supplementary material The online version of this article (https://doi.org/10.1007/s11558-019-09347-z) contains supplementary material, which is available to authorized users. Florian M. Hollenbach
[email protected] 1
Department of Political Science, Texas A&M University, College Station, TX, 77843-4348, USA
F. M. Hollenbach
in non-democratic regimes?1 What determines when political and economic elites demand investment in public education? Much of the work in political economy has been concentrated on spending patterns in democracies (Boix 1998; Busemeyer 2007; Persson and Tabellini 2003; Ansell 2008; Iversen and Stephens 2008) or differences between regime types (Ansell 2008; Baum and Lake 2003; Boix 2003; Acemoglu et al. 2013; Stasavage 2005).2 We know much less about the origins of spending on education in non-democracies, even though this is where first investments generally occurred. In contrast to the observed variation, scholars often assume that non-democracies have little interest to invest in public goods spending (e.g., Boix 2003; Bueno de Mesquita et al. 2005). In an attempt to enhance our understanding of elite demands for education and investments in non-democracies, I empirically investigate a theory of when self-interested non-democratic elites prefer higher levels of public spending. I make use of a theoretical model developed by Galor and Moav (2006) and argue that differences in factor endowments by political elites can lead to differential preferences over govern
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