Fiscal Choices and Economic Outcomes
The Locke Institute series
Chapter 5: Variations on the Democratic Model
What would be the eﬀects on the ﬁscal choices and economic outcomes of a democratic government by varying the model parameters from those presented in Chapter 3, varying the level of ﬁxed costs from that in the standard case presented in Chapter 4, or the diﬀerence between a short- and long-run ﬁscal horizon? These are the questions addressed in this chapter. THE ECONOMIC PARAMETERS An understanding of the eﬀects of varying the economic parameters b and c is important for three reasons: these parameters cannot be estimated precisely, they may diﬀer over time in the same country, and they almost surely diﬀer among countries. The eﬀects of varying each of these economic parameters are speciﬁc to the standard model of a democracy with transfer payments, a broad franchise and majority rule, and a longterm ﬁscal horizon, holding constant the other parameters in this model. As it turns out, side calculations (not reported here) indicate that the relative outcomes of autocratic, democratic, and optimal government are changed only a little by varying these economic parameters. Increasing the parameter b increases the positive marginal eﬀect on total output of a given level of expenditures for general government services. This parameter may be changed by changing the allocation or eﬃciency of general government expenditures, but it is more likely to reﬂect changes in the 48 Variations on the Democratic Model 49 economy. An increase in the demand for education or some damage to...
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