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The purpose of this paper is to consider the determinants of state capacity investments and public finance in societies with different intensities of democracy. Specifically, we consider the implications of political (dis)parity between the political parties as well as voter groups for state capacity investments, public goods provision, preferential tax policies between the elites and citizens, and the ability of the incumbent government to accrue political rents. The paper provides a unified framework to study the direct and indirect effects of democracy by combining state capacity investment and probabilistic voting. Paradoxically, while stronger electoral contestability leads to higher public good provision and lower political rents, it deteriorates the incumbent's incentive to invest in state capacity. Similarly, when increased political inclusivity between the voters leads to higher public good provision and lower political rents, it will have a negative effect on state capacity. Conversely, if the effect of inclusivity on state capacity investment is positive, then public good provision will decline.

This paper investigates how households form subjective preferences. We examine the relationship between subjective economic confidence or sentiments and the perception of the incumbent government's competence, and consider how preferences affect each other. We further consider consequences of different presidencies. A theoretical model shows how households 'anchor' subjective views of the incumbent's competence on the household's confidence. Empirical analysis confirms the posited behavior and confirms that different presidencies have a bearing on the relationship. [Copyright 2007 Elsevier B.V.]

This paper presents a testable theoretical framework that extends the standard demand-side approach to modelling government expenditure on goods & services. The focus is on the adjustment of expenditure to disequilibria: we investigate whether the adjustment of UK exhaustive government expenditure between 1966 & 2002 to its long-run equilibrium path is symmetric. The evidence points to asymmetric adjustment to the demands of a representative voter over the election cycle but not between Labour & Conservative governments. Convergence to equilibrium is faster during the later stages of each election cycle. Tables, Figures, Appendixes, References. [Copyright 2006 Elsevier B.V.]