Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/55538
Authors: 
Dulleck, Uwe
Wigger, Berthold U.
Year of Publication: 
2012
Series/Report no.: 
CESifo working paper: Public Finance 3738
Abstract: 
Fiscal restraints have been argued to force today's governments to internalize the externalities that result from extensive borrowing on future electorates and governments as well as on other countries by causing fiscal instability. In this article we provide an alternative argument for fiscal restraints which is based on an agency perspective on government. A budget maximizing politician is better informed than the electorate about the necessary spending to ensure the states ability to provide services for the economy. In this respect, the politician is an expert in the meaning of the credence good literature. The electorate, being able to observe the budget but not the necessary level of spending, will reelect a government if its budget does not exceed a critical level. A fiscal restraint limits the maximum spending a government will choose if the reelection level is not sufficient to ensure the state's ability to provide services to the economy. We determine when such a fiscal restraint improves voter welfare and discuss the role of the opposition in situations where very high levels of spending are required.
Subjects: 
electoral control
fiscal restraints
credence goods
JEL: 
D82
H50
H61
Document Type: 
Working Paper

Files in This Item:
File
Size
322.01 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.