Electoral System and Public Spending (Electronic book text)

In modern democracies, elected representatives making decisions on fiscal policy face a basic trade-off: that between allegiance to a social constituency and allegiance to a geographic constituency. Elected officials represent a specific district, but also typically advance the interests of specific social groups that spread across many districts or the whole nation. This trade-off is relevant to fiscal policymaking because it parallels the distinction between the two main types of government spending: transfers and purchases of goods and services.1 The former are mostly targeted to groups of individuals with certain social characteristics, such as the unemployed and the elderly; the scope for targeting them geographically is therefore limited. The latter (which we will call public goods for brevity) instead are typically targeted along geographical lines.