3 Previous Research
3.1 Empirical Studies on Government Size
Two broad scholarly interests in the study of government size can be identified for the nineties and up to the present time. On the one hand, many studies focused on the consequences of an increasing international integration of markets for public sector size.
Whether globalization results in a larger or a smaller share of government activity is one of the major current controversies in the field. The other, and admittedly more diverse, strand of research examines the effect of political institutions on government size. To a large extent, this is a reflection of the broader trend in political science to take into account the role of institutions in explaining political decisions and outcomes, also referred to as the neo-institutionalist paradigm. But also among economists, the importance of political structures in explaining public sector size is increasingly acknowledged and analyzed (see e.g. Katsimi, 1998; Persson & Tabellini, 1999). Although the possible effects of international economic integration are taken into account, the main stress in this analysis lies on the influence of these domestic political and institutional factors. Table 3 gives an overview of previous empirical studies in the field. Since the study of government size is a burgeoning area of research, the list is inevitably selective5.
5 There were several criteria for inclusion in the table. The first condition was the use of some measure of overall public sector size as the dependent variable. Hence, studies on related topics like budget deficits or welfare spending are neglected because they refer to different research questions. Secondly, only research papers with some relation to the theoretical arguments made here were selected. They had to examine either partisan, institutional, or interest group effects on government size. With regard to institutional factors, only studies examining effects of the number of parties in government or institutional constraints on government discretion are listed. Finally, the focus lies on recent studies, mostly from the early nineties onwards. But even within these restrictive criteria, table 3 cannot claim completeness.
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Table 3: ...Previous Studies on Government Size
Author(s) Design
Cases (Period) Dependent variable(s) Impact of politics
Cusack et. al.
(1989) Pool
13 (1963-1983) Civilian employment Union strength +*
Left +*
Roubini &
Sachs (1989) Cross section
13 (1973-1985) ∆ Total expenditure net of capital outlays and interest payments
Left +*
Type of government +*
Garrett &
Lange (1991) Cross section 15
15 (1960-1987) Total civilian expenditure Left +*
Minority +*
12 (1981-1989) ∆ Total expenditure Left +*
Type of government + Garrett (1995) Pool
15 (1967-1990) Total expenditure Left labor power – Left labor power x capital mobility +*
x trade +*
Blais et. al.
(1996) Pool 18
(1962/1970-1991)
∆ Total civilian central government expenditure
∆ Total civilian central government expenditure net of interest payments
Left +*/+*
Left x Minority +/+
Schmidt (1996) Pool
22/23 (1960-1994)
Type of government +*
De Haan &
Sturm (1997) Pool
21 (1982-1992) ∆ Nontransfer
expenditure Left +
Type of government - Garrett (1998) Pool
14 (1966-1990)
Total expenditure Civilian consumption
Left-labor power +/+
Left-labor power x capital mobility +*/+*
x Trade +*/+
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Table 3: Previous Studies on Government Size (Continued)
Author(s) Design
Cases (Period) Dependent variable(s) Impact of politics
Katsimi (1998) Pool
12 (1967-1985)
Log of employment Left -*
Huber &
Stephens (2000) Pool
16 (1963-1987) Civilian employment Civilian nontransfer
15 (1961-1993) ∆ Total civilian consumption
∆ Total transfers
Left +*/-
Strength of labor +*/+
Garrett &
Mitchell (2001) Pool
18 (1961-1993) Total expenditure
Consumption Left -/0
Christian Democratic -/- Cusack &
Fuchs (2002) 17 (1962-1996) ∆ Total civilian expenditure
∆ Social transfers and civilian consumption
Left government
x majority in Lower House +*/+*
x majority in all Houses +/+
x left majority in Lower House +*/+*
x left majority in all Houses +*/+*
Schmidt (2002) Pool
21 (1960-1998)
Total expenditure Left +*
Christian Democratic +*
Counter-majoritarian constraints -*
Notes: + and – denote the sign of coefficients and * its statistical significance, ∆ denotes change scores.
All studies in table 3 examined only industrialized democratic countries and cover time periods between the early 1960s and the mid 1990s, probably reflecting the lack of reliable data for a wider sample. Although organizations such as the World Bank, the International Monetary Fund, and the United Nations publish economic data for countries worldwide, their quality for comparative research is often questionable and comprehensive time series for many countries are scarce. The most comprehensive and detailed comparable economic data is only available for developed democracies as offered by the OECD. Similarly and probably partly as a consequence, reliable data for many political features of countries outside the OECD area is rare.
The statistical technique of choice was usually pooled cross-section and time-series regression, the number of countries in the analysis varying between 11 and 23. Having a look at the dependent variables used to measure government size, the variety is
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noteworthy. Most studies used some measure of government expenditure as a share of GDP. But within this category, there was an array of different indicators employed, ranging from central to general government and from total spending to single components of the public budget. Compared to the number of studies that draw on expenditure data, studies using government employment as the dependent variable represent a minority.
Before turning to the theories and results with respect to political variables, it is worthwhile to regard model specifications in previous research to identify other issues that should be accounted for in the analysis. Unemployment, economic development, and exposure to the international economy are the economic explanatory variables most often controlled for in previous research6. Together with the demographic variable old age share of population, they are included in most models of government size. Another economic variable not so often accounted for is the “relative price of public goods”, a measure which reflects the supposedly higher inflation of prices for public goods and services. Several studies found it highly associated with government size (Cusack, 1997; Iversen & Cusack, 2000; Schmidt, 2002), thus its inclusion in the analysis seems promising.