The Political Economy of Public Subsidies

Abstract

The article presents a model to explain cross-national variations in public subsidies. The model incorporates demand-and-supply variables as well as the effects of policy linkages. It predicts that public subsidies are higher in small countries, where unemployment is high, agriculture plays a large role in the economy, left-wing parties are in power, and tariffs and social security transfers are low. The findings tend to confirm six of the seven hypotheses. The study supports Cameron's (1978) assertion that the openness of the economy is a major factor in the expansion of the public economy. Even though the data do not clearly confirm or disconfirm any specific theoretical framework, they are more consistent with the pluralist model, with its insistence that political influence varies from issue to issue and that political actors play a major role in the policy process. Finally, the most interesting finding pertains to the role of policy linkages.