Qualifying the common pool problem in government spending: the role of positional externalities

Abstract

Under what circumstances do coalition partners tend to overspend? The so-far dominant explanation relies on the common pool resource theory—the more cabinet members there are, the higher the spending. While theoretically sound, this explanation seems to be more relevant for some cases and less for others. What could lie behind this discrepancy? While the literature to date has focused on institutional factors, we propose a mechanism that relates to voting behaviour. Relying on the concept of positional externalities, we argue that each coalition member wishes to spend relatively more resources than the other coalition member(s) to attract impressionable voters. Positional externalities, we claim, exhibit a direct positive effect on total spending and, perhaps more importantly, interact with the common pool resource factor, decreasing its relevance when they are weak.