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Inefficiency in Legislative Policymaking: A Dynamic Analysis

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  • Marco Battaglini
  • Stephen Coate

Abstract

This paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining. The policy space incorporates both productive and distributive public spending and distortionary taxation. The productive spending is investing in a public good that benefits all citizens (e.g., national defense) and the distributive spending is district-specific transfers (e.g., pork-barrel spending). Investment in the public good creates a dynamic linkage across policymaking periods. The analysis explores the dynamics of legislative policy choices, focusing on the efficiency of the steady-state level of taxation and allocation of spending. (JEL D72, E62, H20, H50)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.97.1.118
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File URL: http://www.aeaweb.org/aer/data/mar07/20050737_app.pdf
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 1 (March)
Pages: 118-149

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Handle: RePEc:aea:aecrev:v:97:y:2007:i:1:p:118-149

Note: DOI: 10.1257/aer.97.1.118
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  1. Persson, Torsten & Tabellini, Guido, 1997. "Political Economics and Macroeconomic Policy," CEPR Discussion Papers 1759, C.E.P.R. Discussion Papers.
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  6. Stephen Coate & Marco Battaglini, 2005. "Inefficiency in Legislative Policy-Making: A Dynamic Analysis," 2005 Meeting Papers 209, Society for Economic Dynamics.
  7. Hassler, John & Mora, Jose & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002. "The Survival of the Welfare State," Seminar Papers 704, Stockholm University, Institute for International Economic Studies.
  8. Armo Gomes & Philippe Jehiel, 2001. "Dynamic Processes of Social and Economic Interactions: On the Persistence of Inefficiencies," Penn CARESS Working Papers 76ff153ae29996d16c454e473, Penn Economics Department.
  9. Alessro Lizzeri & Nicola Persico, . "The Provision of Public Goods Under Alternative Electoral Incentives," Penn CARESS Working Papers b96440ba0bfa06ca550ac40aa, Penn Economics Department.
  10. Banks, Jeffrey S. & Duggan, John, 1999. "A Bargaining Model of Collective Choice," Working Papers 1053, California Institute of Technology, Division of the Humanities and Social Sciences.
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  12. Eraslan, Hulya & Merlo, Antonio, 2002. "Majority Rule in a Stochastic Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 103(1), pages 31-48, March.
  13. Acemoglu, Daron & Robinson, James A, 1999. "Inefficient Redistribution," CEPR Discussion Papers 2122, C.E.P.R. Discussion Papers.
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  16. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
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  18. Jose-Victor Rios-Rull & Per Krusell, 1999. "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model," American Economic Review, American Economic Association, vol. 89(5), pages 1156-1181, December.
  19. Eraslan, H. & Merlo, A., 2000. "Majority Rule in a Stochastic Model of Bargaining," Working Papers 00-05, C.V. Starr Center for Applied Economics, New York University.
  20. Wittman, Donald, 1989. "Why Democracies Produce Efficient Results," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1395-1424, December.
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