Time horizons matter: the hazard rate of coalition governments and the size of government

This study examines how coalition governments affect the size of government, measured by total central government expenditure as a share of GDP. Existing studies suggest that the presence of multiple political parties within ruling coalitions generate common pool resource problems or bargaining inefficiencies which, in turn, leads to more government spending when coalition governments are in office. We demonstrate that coalition governments have shorter time horizons than single party governments and use that finding to motivate a simple formal model. The model shows that coalition governments have greater incentives to increase government spending because of a lower discount factor in office. Results from empirical models estimated on a global sample of 111 democracies between 1975 and 2007 provide strong statistical support for the aforementioned theoretical prediction. The empirical results remain robust when we control for alternative explanations, employ different estimation techniques, and use different measures of government spending.