Democracy and State Development: Patterns of Public Spending in the First Two Waves of Democratization

Abstract

How do core principles of modern democracy impact the development of state spending? Drawing on Dahl’s (1971) conceptualization of polyarchy, we explain that public budgets in modern states evolved according to how electoral competition and suffrage incorporated key actors within societies. Before contestation and suffrage, land-owning elites led states that focused spending on repressive capacity to maintain regime security. Contestation without broad participation incorporated urban elites who benefited from spending on economic development. Extending suffrage to the masses expanded spending on social welfare but only when regimes allowed for political competition. To test the hypotheses, we collect data on patterns of government finance for over thirty countries across the globe between the early 19th and mid-20th centuries. Two-way fixed effects models and multiple sensitivity analyses offer strong evidence for the theoretical expectations. The findings expand on a substantial literature to form a more complete understanding of democracy and public budgets.