progressive regime which yields costly distortions, and attempt to gain political power to capture benefits from public policies and rents from office. The poor voters are the classic swing voters—unorganized or unattached to political parties, demanding of public spending, and able to swing the vote to determine the identity of the organized groups to hold public office. In the presence of these swing voters, coalitions of organized groups arise as a cooperative response to keep taxes low and yet hold on to public office through the combined strength of their core constituents.

We provide robust supporting evidence for our model from a panel of 24 OECD and 53 developing countries over a period of four decades, 1970-2006, that different measures of coalition governments are associated with lower tax revenues and spending. Switching from a single-party government, where the executive head controls a majority in all law-making houses, to a divided government, correlates with a reduction in taxes and spending of 3-4 percentage points of GDP. These findings are particularly strong for the sub-sample of countries with parliamentary systems where our model of government formation is most likely to apply.

Our results may be reconciled with other recent evidence to the contrary—Persson et al (2006)— owing to our different specification, where we estimate the impact of coalition governments after controlling for political systems (presidential versus parliamentary systems) and electoral rules (proportional versus majoritarian). Our specification estimates the impact of moving from a single party government to a coalition _within_ majoritarian systems, whereas Persson et al (2006) estimate the impact of change from single party to coalition governments owing to the electoral rule switching from majoritarian to proportional. In the latter case, when switches between single-party and coalition government happen directly as a result of electoral rules that shape voting behavior, then non-cooperative models are perhaps more likely to apply. However, we argue that our model is better applicable to understanding changes _within_ a country as it switches between single-party and coalition regimes without a corresponding change in electoral rules, because in such switches coalitions are likely to arise out of a cooperative deal struck between political parties.

Although we do not have a dynamic model for the impact of coalitions on government borrowing, we explore the extent to which our empirical specifications help explain variation in budgetary deficits across countries over time, given that the original impetus of the fragmented fiscal policy literature was to look for evidence in the size of deficits (Roubini and Sachs, 1989). We find that different measures of coalitions have negatively signed coefficients when regressed against deficits, but these coefficients are not statistically significant.

We find another political variable significantly associated with higher deficits, ethno-linguistic fragmentation, as has been found in previous work on the determinants of deficits (Woo, 2003). In previous work fragmentation is assumed to be correlated with deficits because it induces greater fiscal 4