Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129352
Authors: 
Bowen, T. Renee
Chen, Ying
Eraslan, Hülya
Zapal, Jan
Year of Publication: 
2015
Series/Report no.: 
Koç University-TÜSİAD Economic Research Forum Working Paper Series 1516
Abstract: 
Which budgetary institutions result in efficient provision of public goods? We analyze a model with two parties bargaining over the allocation to a public good each period. Parties place different values on the public good, and these values may change over time. We focus on budgetary institutions that determine the rules governing feasible allocations to mandatory and discretionary spending programs. Mandatory spending is enacted by law and remains in effect until changed, and thus induces an endogenous status quo, whereas discretionary spending is a periodic appropriation that is not allocated if no new agreement is reached. We show that discretionary only and mandatory only institutions typically lead to dynamic inefficiency and that mandatory only institutions can even lead to static inefficiency. By introducing appropriate flexibility in mandatory programs, we obtain static and dynamic efficiency. An endogenous choice of mandatory and discretionary programs, sunset provisions and state-contingent mandatory programs can provide this flexibility in increasingly complex environments.
Subjects: 
budget negotiations
mandatory spending
discretionary spending
flexibility
sunset provisions
state contingency
endogenous status quo
dynamic efficiency
JEL: 
C73
C78
D61
D78
H61
Document Type: 
Working Paper

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