Towards Micropolitical Foundations of Public Finance

A main question regarding public finance is how well democratic institutions align the interest of voters and the incentives of self-interested politicians. It has been observed that fiscal policy reflects any incentive present in political institutions. In this paper we summarize a recent line of research attempting to provide such micro-political foundations. In a Presidential-Congressional Political System we have separation of powers, whereas in a Parliamentary System the main feature is legislative cohesion. The principal results of separation of powers are a smaller size of government and lower waste: analyzing legislative cohesion we find that there is a more equal distribution, but more waste and higher taxes