A Simple Coase-Like Mechanism that Transfers Control of Government Spending Levels from Politicians to Voters

Philip Graves ()

No 2007-12, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

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.

Keywords: political incentives; government spending; mechanism design; balanced budget amendments (search for similar items in EconPapers)
JEL-codes: H11 H61 H62 H72 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-cdm, nep-pbe, nep-pol and nep-ppm
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https://www.econstor.eu/bitstream/10419/17935/1/dp2007-12.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:5526

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