Fiscal Restraints and Voter Welfare

Timothy Besley and Michael Smart

STICERD - Political Economy and Public Policy Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

Abstract: This paper explores the logic of …scal restraints in a political agencymodel with both moral hazard and adverse selection. The role of thepolitical process is both to discipline incumbents who may act againstthe public interest and to sort in those politicians who are most likelyact in voters'interests. We use the model to examine the optimality ofine¢ cient taxation, limits on the size of government, increasing trans-parency, and yardstick competition. Some conclusions are surprising.For example, we show that some forms of …scal restraint can only bedesirable when incumbents are su¢ ciently likely to be benevolent.We are grateful to Jim Hines and a number of seminar participants for insightfulcomments.1

Date: 2005-07
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Related works:
Journal Article: Fiscal restraints and voter welfare (2007)
Working Paper: Fiscal restraints and voter welfare (2005)
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