Inefficiency And Reelection

This paper considers one aspect of the potential conflict between efficiency and politics. It analyzes the conditions under which a reelection‐seeking politician will find it in his interest to make efficient choices. The paper first presents a very unrealistic model in which there is no conflict between efficiency and the objectives of the government's chief executive. Under the more realistic assumptions developed in the rest of the paper, the politician can no longer be expected to be efficient. Even with no interjurisdictional spillovers and a single budget category, inefficiency arises from the basic political incentives generated by democratic institutions. There are two fundamental sources of inefficiency. First, the service may not be a pure public good so that particular individuals or firms may be favored more than others. The incumbent can then use state resources to maximize his probability of reelection at the expense of efficient tax and spending choices. Second, voters may have poor information about what the government is doing. The incumbent may then choose especially obvious ways of spending money or skew public decisions to favor campaign contributors.