We propose a model with micropolitical foundations to compare the public …nance outcomes under a presidential-congressional and a parliamentary system. Compared to a parliamentary system, a presidentialcongressional system has less incentives for legislative cohesion, but has a clearer separation of powers. These features make public …nance outcomes radically di¤erent in the two systems. A Parliamentary system has redistribution towards a majority, less underprovision of public goods, more rents to politicians and a higher tax burden, whereas a presidential-congressional system has redistribution towards powerful minorities, more underprovision of public goods, but less rents to politicians and a smaller size of government. JEL classi…cation: H00, D72, D78.

This paper develops a simple model to analyze the dual‐track approach to market liberalization as a mechanism for implementing efficient Pareto‐improving economic reform, that is, reform achieving efficiency without creating losers. The approach, based on the continued enforcement of the existing plan while simultaneously liberalizing the market, can be understood as a method for making implicit lump‐sum transfers to compensate potential losers of the reform. The model highlights the critical roles of enforcement of the plan for achieving Pareto improvement and full liberalization of the market track for achieving efficiency. We examine how the dual‐track approach has worked in product and labor market liberalization in China.