Explaining International Differences in Public Expenditure: An Empirical Study

This paper seeks to explain differences in the ratio of public expenditure components to gross domestic product among OECD countries within an international cross-section regression framework. A simple political institutional model is first developed that explains country differences at the end of the 1970s in terms of differences at the beginning of the 1960s (an assumed preference variable), the frequency of national elections, and a zero-one federal dummy variable. This basic model is then extended to incorporate a number of economic determinants of public expenditure, including the demographic structure of the population, the tax structure, and the size of the economy.