Political Economy of Fiscal Institutions

Juergen von Hagen ()

No 149, Discussion Papers from SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We discuss two essential problems of the political economy of public finances: The principal agent problem between voters and elected politicians and the common pool problem arising from the fact that money drawn from a general tax fund is used to pay for policies targeting more or less narrow groups in society. Three institutional mechanisms exist to deal with these problems, ex-ante rules controlling the behavior of elected policy makers, electoral rules creating accountability of and competition among policy makers, and budgeting processes internalizing the common pool externality. We review recent theoretical and empirical research and discuss its implications for research and institutional design.

Keywords: electoral systems; fiscal rules; budgeting processes (search for similar items in EconPapers)
JEL-codes: H11 H61 H62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cdm, nep-pbe, nep-pke, nep-pol and nep-pub
Date: 2005-11
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