Political Competition and State Government Size: Do Tighter Elections Produce Looser Budgets?

We test implications of politicalcompetition theory concerning government size, usingdata from U.S. states. We find that greaterpolitical competition in the race for governor actsas a check against bigger government. Evidence onthe effectiveness of legal limits on expendituresand/or revenues growth is mixed. The DemocraticParty is associated with bigger government, but onlywhen party representation in both the governor'shouse and the legislature is strong. The flypapereffect of grants is found to be strong. Our resultshave implications for models of fiscal illusion.

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