Many theories of democratization suggest that extending the right to vote will lead to increased government expenditure (e.g. Meltzer and Richard, 1981; Lizzeri and Persico, 2004; Acemoglu and Robinson, 2000). However, these models frequently assume that government can engage in transfer expenditure, which is often not true for local governments. This paper presents and tests a model in which government expenditure is limited to the provision of public goods. The model predicts that the poor and the rich desire lower public goods expenditure than the middle class: the rich because of the relatively high tax burden, and the poor because of a high marginal utility of consumption. Consequently extensions of the franchise to the poor can be associated with declines in government expenditure on public goods. This prediction is tested using a new dataset of local government financial accounts in England between 1867 and 1900, which captures government expenditure on key infrastructure projects that are not included in many studies of national democratic reform. The empirical analysis exploits plausibly exogenous variation in the extent of the franchise to identify the effects of extending voting rights to the poor. The results show strong support for the theoretical prediction: expenditure increased following relatively small extensions of the franchise, but fell following extensions of the franchise beyond around 50% of the adult male population.That might explain the tendency of cities with strong transfer ethos' to hollow out. As long as there is a large middle class, the majority of public resources are invested in improving the communal infrastructure. But as the middle class declines (moves to the suburbs) then the relatively fixed public resources become increasingly diverted to transfer payments and away from public infrastructure worsening the environment for the remaining Middle Class until all that are left are the top and bottom quintiles. Case studies - New York, Philadelphia, Chicago, San Francisco, etc.
The corollary would explain why it is so hard to attract the Middle Class back. In order to get them interested, you have to invest in the common public infrastructure and in order to do that, assuming you are maxed out in the bond market, you have to divert resources away from transfers and back into infrastructure. Very hard to do given that the transfer beneficiaries are strongly motivated to punish anyone interfering with the status quo.
Still, it is only a marginally supported argument as yet.