This study examines the effects of democratization on the size and composition of government expenditure using the data of 125 countries between 1972 and 2010 at most. Specifically, we focus not only on the total expenditure but also on their composition and employ dichotomous indices of political regimes rather than score indices. Moreover, we construct instruments for democratization based on the democratization wave and conduct an instrumental variables estimation to address endogeneity problems. Our results show that while democratization does not have a significant impact on total expenditure, it increases expenditure on health and education and decreases expenditure on defense. Furthermore, considering the time-varying effect of democratization, defense expenditure starts decreasing immediately after a regime change and health expenditure increases in the medium and long run, while they do not significantly vary before a regime change. Thus, while focusing only on total expenditure does not uncover the effects of democratization, considering detailed categories of government expenditure enables us to understand how democratization changes governments' behaviors.
This paper examines the relationship between ethnic composition, political regimes, and social welfare. We provide a simple model which divides individuals in each ethnic group into two types of individuals: the benevolent and the self-interested. Each individual determines whether or not to run for office. A policy maker, who allocates government budget among ethnic groups, is chosen among the candidates by voting. In a democracy, all individuals can run for office and can vote in the election. In a dictatorship, the right to run for election and the right to vote are limited to a specific ethnic group. We investigate how ethnic diversity affects selection of a politician and the resulting policy choices in democratic and dictatorial regimes. Ethnic composition affects electoral outcome and policy payoff. Thus, individuals' incentive to run for election depends on ethnic composition. The size of ethnic group in power also affects social welfare. Our model derives (1) a negative relationship between ethnic diversity and social welfare, both in a democracy with a dominant group and in a dictatorship, and (2) a non-monotonic relationship in a democracy without a dominant group. In the empirical examination, employing health outcomes as the proxy for the social welfare, our theoretical results are supported by evidence from the data of 157 countries.
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