This chapter discusses interactions between the public and private sectors through the role of pressure groups, who push the government in the direction of higher spending according to their own interests. These pressure groups are unions in the public sector and entrepreneurial associations in the private sector. One of the reasons why governments overspend is due to the political business cycle; countries with high turnover of the governing party are associated with high levels of spending. The chapter ends with a discussion of the Laffer Curve, which points to the fact that governments can set the tax rate, but do not determine the tax revenue; and a discussion about the interaction of government versus corporations in fiscal terms.

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