Autocratic, Democratic, and Optimal Government

Autocratic, Democratic, and Optimal Government

Fiscal Choices and Economic Outcomes

The Locke Institute series

William A. Niskanen

This book presents simple models of the major alternative types of political regimes, estimates of the parameters of these models, and quantitative estimates of the fiscal choices and economic outcomes of these regimes. William Niskanen provides valuable analysis of the effects of the voting rule, the progressivity of the tax structure, and the length of the fiscal horizon in democratic governments and interesting insights of the effects of alternative regimes on policies, such as war and immigration, that affect the number of people subject to the regime.

Chapter 3: The Parameters

William A. Niskanen

Subjects: economics and finance, public choice theory, politics and public policy, public choice


Most of the economic and political parameters of the models described in the prior chapter can be estimated from observed data. For this study, the several sets of parameters used to estimate the fiscal choices and economic outcomes of the alternative political regimes are based on recent US data. THE ECONOMIC PARAMETERS The first task is to estimate the parameters a, b, and c of Equation 2.1 (Chapter 2), the basic relation between fiscal choices and economic outcomes that is common to all regimes. The parameter a is arbitrary; this parameter affects the levels but not the relative magnitudes of the fiscal and economic outcomes. In order to provide a basis for easy comparison of the outcomes of the several types of regimes, the parameter a is set at a level such that the output per potential worker in the reference case – a democracy with a broad franchise, majority rule, and a long-term fiscal horizon – is equal to 1,000. For this study, the parameters b and c are estimated by two independent techniques, in part to test the validity of the model of democratic government outlined in Chapter 2. The first technique is to estimate the parameters b and c that are implicit in the actual levels of G and R for the United States in 1996, given the model of democratic government and the estimates (to be described later) of the political parameters d, e, and f, again for the United States in 1996. Solving Equation 2.13...

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