 Deficits and debt  Speed of adjustment and overall debt burden  The overall size of government  General versus targeted expenditures  Redistribution

 Why might a benevolent dictator run deficits?

 Finance capital projects  Smooth tax rates and expenditures over time  Keynesian management: Borrow during recession to stimulate demand.

 A finding that emerged in the 1980s: Coalition government and deficits  Causal logic?

 “Overfishing the common pool.”  Each party in the coalition is not internalizing the full costs of the expenditure demands it makes  Solutions to this problem?  “War of attrition” and delayed stabilization  When adjustment is needed, each party believes the other should bear the costs.

 Expected probability of reelection might be important  If I expect to be in power in the next period, I face incentives not to generate excessive deficits  But if I expect to lose, take everything and externalize the costs on successor  Tie the hands of successors to prevent them from making undesirable expenditures

 Taxes fall and expenditures increase in election years.  How should we interpret this? Are voters gullible?  Can voters ever punish fiscal indiscipline? Do they?  What is the role of credit markets?

 Proportional representation versus SMD:  Persson, Roland, Tabellini (2007), “Electoral common pool problem”: Voters can discriminate between the parties of a coalition at the polls, but they cannot discriminate between factions of a single party government. This creates electoral conflict, and a common pool problem, within a coalition government but not within a single-party government.

 Presidential vs. parliamentary:  P/T: Concentration of power in parliamentary systems, checks and balances in presidential ▪ Weaker accountability yields higher rents and higher expenditures under parliamentary  P/T: A story about legislative cohesion, no confidence procedure: ▪ In parliamentary regime, stable majority of incumbent legislators can benefit from spending while externalizing the costs onto “outsiders,” while there is competition to get into the winning coalition in presidential systems

 Evidence:  Appear to be large effects on size of government for both  More recent work (PRT 2007): The effect of electoral rules flows through the number of parties/coalitions

 District magnitude:  P/T 2000: Assume two parties who can commit to their platforms. Larger districts diffuse electoral competition, forcing parties to seek support from broad coalitions. Small districts induce focus on narrow geographic constituencies ▪ Similar story with different modeling strategy in Lizzeri and Persico (2001). Similar story with far more complex model in Milesi-Ferretti, Perotti, and Rostagno (2002). Better empirics?

 Presidential versus parliamentary  PRT (2000): Incumbent legislators elected by retrospective voters in different districts. ▪ In parliamentary system, stable majority of legislators pursues joint interests of its voters. This yields broad social transfers, public goods. ▪ Presidential system: No party discipline, interests of different minorities pitted against one another. Fleeting coalitions of special interest groups, districts.

 What is missing?

 More sophisticated understanding of presidentialism outside the USA  Partisan composition of legislatures  Sort out district structure versus electoral rules  Party lists, internal party procedures  Decree powers

 Matching  Instruments  Year of adoption of constitution  Hall and Jones (1999) instruments ▪ Latitude, % English speaking, % European native tongue