Easy Answer All My Students Should Know

Last week, I presented a question almost all my Public Choice students have trouble answering:

Suppose voters were rational [in the Rational Expectations sense] and the SIVH [Self-Interested Voter Hypothesis] were true.

T, F, and Explain: Democracies would spend a
higher share of their budgets on genuine public goods.

Students usually claim that self-interested voting will lead to more redistribution and less public good production: Selfish people want free stuff, but don’t care about society.  But that’s pretty silly.  Key point: Redistribution is zero-sum, but genuine public goods are positive-sum.  As a result, there are generally far more selves who selfishly benefit from public goods than redistribution! 

And since we’ve assumed rationality, the electorate will, on average, recognize this difference.  Whatever you think about rational, selfish voters’ desired level of government spending, their relative support for public goods over redistribution raises the budgetary share devoted to genuine public goods.  This result is even clearer if you realize that many alleged “public goods” aren’t public goods at all – and that rational, selfish voters would, on average, realize this fact and support them less, further boosting the budget share of genuine public goods.

P.S. I’m on vacation for the next four weeks.  Expect light posting during that time.  Happy holidays to all!

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