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Democracy, state capacity and public finance
Author(s) -
Easaw Joshy Z.,
Leppälä Samuli
Publication year - 2023
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.13115
Subject(s) - public good , economic rent , economics , democracy , politics , incentive , investment (military) , public finance , state (computer science) , direct democracy , public economics , representative democracy , market economy , microeconomics , political science , macroeconomics , algorithm , computer science , law
The paper addresses how democracy can affect public finance and state capacity investment. We show that the effect of democracy on public policy can take two forms: direct and indirect. The direct effect transpires when increasing democracy leads to an increase in public expenditure which results in increased public goods provision and reduced political rent. The indirect effect emerges when increased democracy leads to a reduction in state capacity investment and, subsequently, to a reduction in public goods provision. Paradoxically, lower political rents deteriorate the incumbent's incentive to invest in state capacity, at the expense of public goods provision.