Microeconomic theoretical framework and empirical testing using cross-sectional
Keywords:
Government, System, Political, Economic development, ImprovementAbstract
This study suggests establishing a theoretical framework to explain the impact of institutional quality on public sector size across a panel of countries at varying levels of economic development. The study also suggests that the influence of institutional quality on public sector size may be investigated at a regional level. Persson and Tabellini's (1999) theoretical model of political competition was discussed earlier in the study, and it was also suggested that future research might extend the model to incorporate the influences of executive constraints on the ruling elite in both Presidential and Parliamentary forms of government. The study also finds limited evidence of a negative relationship existing between political competition and the size of the public sector. Regarding other existing theories of the determinants of the public sector size, the study finds international trade has a positive impact on public sector size whereas only estimation results from four-year moving averages data showed a positive relationship existing between country's per capita income and public sector size. The study strongly recommends that future work on the analysis of institutional quality and its impact on public sector size be carried out based on both a microeconomic theoretical framework and empirical testing using cross-sectional or time-series data.
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