Fractionalization and the size of government

This paper studies the effect of fractionalization on the level of taxation and economic performance. Within a political economy model of tax determination, I study the effect of voters with a group-based social conscience. Voters care more about the well-being of those belonging to their own group than the rest of the population. I show that under fairly general assumptions, fractionalization reduces the size of government. I also show that because voters with partial social conscience have a bias towards what favour themselves in their preferences, fractionalization may in some cases serve as a counterweight and hence improve efficiency. Finally, I study how the party system affects this conclusion