Interest groups and the size of government

Abstract

The results of the previous section, estimates of a three equation model from 23 observations, must obviously be regarded as tentative. The consistent positive relationship between number of interest groups and size of government observed with changing sets of included independent variables, changing samples of nations, and treating the number of interest groups as either exogenous or codetermined, does imply rather unequivocally that interest groups are able to influence public policies in such a manner as to lead to increased government size. Beyond helping to reinforce this conclusion, the results of the previous section should be regarded as first steps in the development of a model of the polity that can explain participation in the political process by interest groups and citizens as well as the size of government. The two most important variables explaining government size other than the number of interest groups proved to be population and the percentage of the population voting. The consistently negative relationship between relative government size and population is noteworthy since several recent papers have assumed that the only government output is redistribution. The negative relationship, implying that an increase in population leads to a less than proportionate increase in the size of government, shows that government expenditure exhibits a most basic public good characteristic. The percentage of the population voting, which probably is closely related to the proportion of voters with incomes below the median, consistently has a positive and significant impact on the size of government. The Meltzer-Richard hypothesis that greater participation by low income voters leads to more redistribution and greater government size is strongly supported. The inclusion of both the interest group and voter participation variables in the government size equation relies on theories related to redistributive activities. The voter participation variable posits a direct responsiveness of government outcomes to voter preferences through the operation of the median voter theorem, and implies rich-to-poor redistribution. The interest group theory posits increasing government size through the addition to the public weal of expenditures on goods with disproportionate benefits for certain interest groups. Such expenditures have distributional implications since in the absence of government provision the interest groups would either go without the goods or have to provide them themselves. While the theory makes no explicit prediction about the direction of this redistributional flow, since the largest single category of interest groups in most countries by far is industry trade associations, one might expect poor-to-rich redistribution as the most likely consequence of interest group influence. Thus, the possibility exists that the influence of the two variables on the distribution of income might be largely offsetting, while their influence on the size of government is cumulative. Disaggregating the effects of these and other public choice variables is a promising avenue for future research. Copyright Martinus Nijhoff Publishers 1986