Efficiency of Flexible Budgetary Institutions

Ying Chen, Jan Zapal, Hülya Eraslan and T. Renee Bowen

No 843, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: Which budgetary institutions result in efficient provision of public goods? We analyze a model with two parties bargaining over the allocation to a public good each period. Parties place different values on the public good, and these values may change over time. We focus on budgetary institutions that determine the rules governing feasible allocations to mandatory and discretionary spending programs. Mandatory spending is enacted by law and remains in effect until changed, and thus induces an endogenous status quo, whereas discretionary spending is a periodic appropriation that is not allocated if no new agreement is reached. We show that discretionary only and mandatory only institutions typically lead to dynamic inefficiency and that mandatory only institutions can even lead to static inefficiency. By introducing flexibility, either through a combination of mandatory and discretionary programs, or through a state-contingent mandatory program, we obtain static and dynamic efficiency.

Date: 2015
New Economics Papers: this item is included in nep-cdm and nep-dge
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Efficiency of flexible budgetary institutions (2017)
Working Paper: Efficiency of Flexible Budgetary Institutions (2016)
Working Paper: Efficiency of Flexible Budgetary Institutions (2016)
Working Paper: Efficiency of Flexible Budgetary Institutions (2015)
Working Paper: Efficiency of Flexible Budgetary Institutions (2015)
Working Paper: Efficiency of Flexible Budgetary Institutions (2015)
Working Paper: Efficiency of Flexible Budgetary Institutions (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:843

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