How might the majority voting model be used to explain the growth of government

Question

How might the majority voting model be used to explain the growth of government expenditures? (a) Should changes in median or average income better explain increases in the demand for government services? (b) What should be the effect of an increase in the costs of production public good caused by government inefficiency? Would it make a difference if the increase in cost is a result of government paying above market wages (wages higher than those paid companies workers in the private sector)? (Does your answer to the last question depend on whether the median voter is a government employee?) (c) Why might you expect that if income per capita remains the same but the number of individuals in the economy increases, the demand for public good would increase?

Explanation / Answer

1) How might the majority voting model be used to explain the growth of government expenditures? As per the majority voting model, increase in the median voters income means that there is an increase in expenditure on government (i.e. growth of government expenditures) 2) Should changes in median or average income better explain increases in the demand for government services? The pure median voter model takes into consideration the median income rather than the average income. However, if the voting system is based on a model such that "one dollar means one vote" then the average income becomes important. Therefore, median income better explains increase in demand for government services. 3) What should be the effect in an increase in the costs of producing public goods caused by gov't inefficiency? Would it make a difference if the increase in cost is a result of gov't paying above market wages? Increase in government inefficiency will lead to increase in taxes levied by the government. This will increase in taxes will be uniform for all voters including the median voters as well. This will in turn lead to lower quantity demanded. Now, assuming that the median voter is a civil servant and government inefficiency leads to changes in market wages (increase). This will lead to two effects - price effect and substituition effect Price effect: Quantity demanded is lesser due to higher prices Substituition effect: Quantity demanded is higher due to higher wages Amongst the two contradicting effect, the substituition effect is generally stronger and hence the net effect is that there is an increase in demand 4. Why might you expect that if income per capita remains the same but the number of individuals in the economy increases, the demand for public good would increase? With increase in the number of individuals, the sum of all demand curves will rise with no effect on total costs (as these are public goods). Rise in demand curve with no effect on cost will lead the equilibrium quantity to rise

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