Why do small states have big governments?

Karen L. Remmer (2010).
Issue 01, March 2010 pp 49-71

Building on the literature on public finance, this article explores the consequences of political scale for government spending. The central argument is that the tendency for small political units to have big governments is not merely the result of economies of scale in the provision of public goods, but a reflection of the greater pressures for public spending faced by politicians in smaller and more homogeneous political units.

The importance of such political pressures relative to other influences on spending is assessed on the basis of subnational data by comparing the relationship between size and spending under democracy and dictatorship. To the extent that government expansion is driven by citizen demands, the impact of size on spending may be expected to be more pronounced under democratic than authoritarian governance.

Results from a time-series cross-sectional analysis of growth in government spending are consistent with this expectation. Government growth is shaped not only by the population size of political units but also by the interaction between regime and size. Analysis of spending patterns under democratic rule further indicates that size is an important determinant of spending even after controlling for variations in citizen preferences, political institutions, electoral competitiveness, and economic performance.

The results have important theoretical implications for the study of fiscal policy and democratic governance around the world because they suggest that political scale conditions the linkages between citizens and the state, creating widely varying incentives for government growth across differently sized political units.

small states; government size; political scale; government spending; fiscal policy