TOWARDS MICROPOLITICAL FOUNDATIONS OF PUBLIC-FINANCE

Observed fiscal policy reflects the incentives embedded in political i nstitutions. In this paper, we illustrate the effects of two general i nstitutional features: separation of powers, which is common in presid ential-congressional political systems, and legislative cohesion, whic h is typical of parliamentary systems. Compared to a simple legislativ e game, separation of powers brings about a smaller size of government and lower waste. Legislative cohesion induces a more equal distributi on, but more waste and higher taxes, than separation of powers. (C) 19 98 Elsevier Science B.V. All rights reserved.