Political competition drives public spending, shaping government size and economic fundamentals.
The article investigates whether politics or economics have a bigger impact on public policy. By studying Canadian data over 130 years, the researchers found a political business cycle where public spending fluctuates with economic growth. They looked at how political factors influence the size of the government, and found that only the level of political competition significantly affects public expenditure. This means that in a competitive political system, public spending tends to align with economic fundamentals in the long run.