Optimal fiscal limits with overrides

Stephen Coate and Ross Milton

Journal of Public Economics, 2019, vol. 174, issue C, 76-92

Abstract: This paper studies optimal fiscal limits in the context of a simple political economy model. A politician chooses the level of taxation for a representative citizen but is biased in favor of higher taxes. A constitutional designer sets a tax limit before the citizen's preferred level of taxation is fully known. The politician is allowed to override the limit with the citizen's approval. The paper solves for the optimal limit and explains how it is impacted by the possibility of overrides. The paper also shows that the citizen's welfare can be enhanced if the designer imposes a limit on the politician's override proposals.

Keywords: Political economy; Tax limits; Fiscal policy (search for similar items in EconPapers)
JEL-codes: D72 H71 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:174:y:2019:i:c:p:76-92

DOI: 10.1016/j.jpubeco.2019.04.001

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