Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/17935
Authors: 
Graves, Philip E.
Year of Publication: 
2007
Series/Report no.: 
Economics Discussion Papers / Institut für Weltwirtschaft 2007-12
Abstract: 
Elected representatives have little incentive to pursue the interests of those electing them once they are elected. This well-known principle-agent problem leads, in a variety of theories of government, to nonoptimally large levels of government expenditure. An implication is that budgetary rules are seen as necessary to constrain politicians? tax and spending behavior. Popular among such constraints are various Balanced Budget Amendment proposals. These approaches, however, are shown here to have serious limitations, including failure to address the central concern of spending level. An alternative approach is advanced here that relies on a Coase-like mechanism that transfers control of government spending to the voter. Prisoner's dilemma incentives and political competition are seen to be critical to the superiority of the present mechanism to approaches requiring budget balance.
Subjects: 
political incentives
government spending
mechanism design
balanced budget amendments
JEL: 
H61
H62
H72
H11
Creative Commons License: 
http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type: 
Working Paper

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