The Retrenchment Hypothesis and the Extension of the Franchise in England and Wales

Abstract

Does an extension of the voting franchise always increase public spending or can it be a source of retrenchment? We study this question in the context of public spending on health-related urban amenities in a panel of municipal boroughs from England and Wales in 1868, 1871 and 1886. We find evidence of a U-shaped relationship between spending on urban amenities and the extension of the local voting franchise. Our model of taxpayer democracy suggests that the retrenchment effect was related to enfranchisement of the middle class through nation-wide reforms and that these reforms might have been Pareto inferior in the average borough.

Democratization and the size of government: evidence from the long 19th century

“…Some have argued that the relationship is, in fact, U-shaped rather than monotonically increasing in the share of the population with the right to vote (Lindert 2004a:Chap. 7;Plumper and Martin 2003;Hausken et al 2004;Aidt et al 2010). Starting from a very narrow franchise which effectively allows only the members of the elite to vote (or where no formal voting takes place at all), an extension of the right to vote to broader segments of the elite or to the middle classes may lead to retrenchment.…”

“…The ruling elites under non-democracy were less concerned about these costs. They were often able to shift the tax burden onto other, disenfranchised groups and might even, in some contexts, have viewed spending as an important lever to pull to keep themselves in power, as means of extracting rents, or viewed investments in social infrastructure as being particularly beneficial to them, as argued by Aidt et al (2010). This logic can also explain why we fail to find evidence of retrenchment in the shorter sample from 1870 to 1913: we do not have a sufficiently large number of non-democracies in that sample.…”

“…Some of the historical studies also use IV techniques to overcome the endogeneity problem inherent in estimating the association between voting institutions and fiscal outcomes and they are more optimistic about the causal nature of the association. Kim (2007) and Aidt and Jensen (2009b) use measures of the threat of revolution as instruments for suffrage reform in Western Europe 47 and Aidt et al (2010) use a natural experiment along with measures of inequality as instruments for the extension of franchise in local elections in England and Wales in the 1870s. We note that Kim (2007) and Aidt et al (2010) study the expenditure side of the budget and that the claims of causality all relate to the effect of the suffrage on different aspect of government spending.…”

“…Kim (2007) and Aidt and Jensen (2009b) use measures of the threat of revolution as instruments for suffrage reform in Western Europe 47 and Aidt et al (2010) use a natural experiment along with measures of inequality as instruments for the extension of franchise in local elections in England and Wales in the 1870s. We note that Kim (2007) and Aidt et al (2010) study the expenditure side of the budget and that the claims of causality all relate to the effect of the suffrage on different aspect of government spending. These claims are consistent with our finding that the IV estimate of the effect of franchise extension of government spending per capita is positive and significant.…”

Political Institutions and Government Spending Behavior: Theory and Evidence from Iran

“…Aidt and Eterovic (2011) suggest that political competition appears to be negatively correlated with the government size, while the opposite is true for political participation. Moreover, Plümper and Martin (2003), Hausken et al (2004) and Aidt et al (2010) find a U-shaped relationship between democracy and public spending. They suggest that for low levels of democracy public spending is high to meet the demands of elites, while for high levels of democracy the usual median voter"s model prediction applies and public spending is high due to popular demand of public goods.…”