The Composition of Government Expenditure: Economic Conditions and Preferences

Economic Inquiry, 49(1) 2011, pp. 94-107.

14 Pages Posted: 26 Oct 2010 Last revised: 8 Jan 2014

See all articles by John Creedy

John Creedy

University of Melbourne - Department of Economics

Shuyun May Li

University of Melbourne

Solmaz Moslehi

Monash Business School

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Date Written: October 25, 2010

Abstract

This paper examines the question of why the composition of government expenditure differs among democratic countries and to what extent it may be explained by differences in economic conditions or preferences. A simple overlapping generations model, which allows for a range of relevant factors, is constructed to examine the division of expenditure on public goods and a transfer payment under majority voting. The model yields a closed-form solution for the majority choice of the expenditure ratio. An empirical examination suggests that income inequalities play a minor role while different preferences for public goods reflecting cultural differences across countries may play an important role in accounting for the substantial variations in expenditure patterns.

Suggested Citation

Creedy, John and Li, Shuyun May and Moslehi, Solmaz, The Composition of Government Expenditure: Economic Conditions and Preferences (October 25, 2010). Economic Inquiry, 49(1) 2011, pp. 94-107. , Available at SSRN: https://ssrn.com/abstract=1697875

John Creedy

University of Melbourne - Department of Economics ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia
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Shuyun May Li (Contact Author)

University of Melbourne ( email )

Melbourne, 3010
Australia

Solmaz Moslehi

Monash Business School ( email )

Wellington Road
Clayton, Victoria 3168
Australia

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