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RESEARCH PRODUCT

Government Size, the Role of Commitments*

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We explore the hypothesis that long-term commitments affect the dynamics of government expenditure. With the aid of a simple median-voter model we interpret the pattern of increasing-then-constant tax rates observed in OECD countries in the second half of the last century: persistence of public expenditure and a lower bound on new interventions will push government size upward, and preferences of the electorate put a halt to this growth at some point. In this view, the fiscal policy variable is seen to consist of only a part of the total expenditure, the rest being predetermined by its past level.