Qualifying the common pool problem in government spending: the role of positional externalities
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Qualifying the common pool problem in government spending: the role of positional externalities Dušan Pavlović1 · Dimitros Xefteris2
© Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract Under what circumstances do coalition partners tend to overspend? The so-far dominant explanation relies on the common pool resource theory—the more cabinet members there are, the higher the spending. While theoretically sound, this explanation seems to be more relevant for some cases and less for others. What could lie behind this discrepancy? While the literature to date has focused on institutional factors, we propose a mechanism that relates to voting behaviour. Relying on the concept of positional externalities, we argue that each coalition member wishes to spend relatively more resources than the other coalition member(s) to attract impressionable voters. Positional externalities, we claim, exhibit a direct positive effect on total spending and, perhaps more importantly, interact with the common pool resource factor, decreasing its relevance when they are weak. Keywords Positional externalities · Public spending · Common pool resource theory · Voting · Behavioural economics JEL Classification E62 · H30 · H62
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1060 2-020-09306-6) contains supplementary material, which is available to authorized users. * Dušan Pavlović [email protected]; [email protected] https://scholar.google.co.uk/citations?user=DfZatiEAAAAJ&hl=en Dimitros Xefteris [email protected]; [email protected] https://drive.google.com/file/d/0B2LnN4c0kPoBRFNjeFdERk9NYWM/view 1
Faculty of Political Science, University of Belgrade, Jove Ilića 165, 11040 Belgrade, Serbia
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Department of Economics, University of Cyprus, PO Box 20537, 1678 Nicosia, Cyprus
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D. Pavlović, D. Xefteris
1 Introduction What is the major motivational force behind public overspending pursued by a cabinet with several coalition members? The initial theoretical research of Shepsle and Weingast (1981) and Weingast et al. (1981) heavily influenced the empirical research that started to take form in subsequent years (Sachs and Roubini 1989a, b; Boix 2001; Corsetti and Roubini 1992; Scratascini and Crain 2002). The most established relevant model was introduced by Perotti and Kontopoulos (2002) and then by Persson and Tabellini (2003). It relied on the common pool resource theory, claiming that systems where only one person takes decisions are more able to restrain public spending than parliamentary regimes where cabinets contain several members who have to hammer out an agreement on the level of public spending. In fact, this mechanism suggests that overspending is more likely the more cabinet/coalition members are in power: if the electoral costs of overspending are split among all coalition members while the benefits are individually enjoyed, then the total amount of spending should be strongly affected by the size
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