What determines the composition of government spending? Specifically, why do some governments engage in consumption binges while others undertake productive investments? This paper analyzes the role of institutions in answering the above question. Consider a society divided into disparate regions, each represented by its own regional party. This society underinvests in public goods since none of the regional parties has a stake in the welfare of the entire society. Consider a society that possesses as well a national party. The national party's, almost by definition, has a stake in the welfare of all regions. We show that when the national partys stake in society's welfare is "small" but non-zero, the underinvestment problem is fully overcome. Surprisingly, when the national party's stake in society is "large," matters are more complicated. In particular, multiple equilibria crop up in one of the equilibria, the underinvestment problem remains unsolved. The paper also studies a growth model that embeds the static model of public spending into a dynamic environment.