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Fiscal restraints and voter welfare

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  • Besley, Timothy
  • Smart, Michael

Abstract

This paper explores the logic of fiscal restraints in a political agency model with both moral hazard and adverse selection. The role of the political process is both to discipline incumbents who may act against the public interest and to sort in those politicians who are most likely act in voters’interests. We use the model to examine the optimality of ine¢ 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 fiscal restraint can only be desirable when incumbents are su¢ ciently likely to be benevolent.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 91 (2007)
Issue (Month): 3-4 (April)
Pages: 755-773

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Handle: RePEc:eee:pubeco:v:91:y:2007:i:3-4:p:755-773

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Web page: http://www.elsevier.com/locate/inca/505578

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  16. Paul Belleflamme & Jean Hindriks, 2005. "Yardstick competition and political agency problems," Social Choice and Welfare, Springer, vol. 24(1), pages 155-169, 09.
  17. Edwards, Jeremy & Keen, Michael, 1996. "Tax competition and Leviathan," European Economic Review, Elsevier, vol. 40(1), pages 113-134, January.
  18. James E. Alt & David Dreyer Lassen, 2003. "Fiscal Transparency and Fiscal Policy Outcomes in OECD Countries," EPRU Working Paper Series 03-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  19. James Buchanan & Roger Congleton, 1979. "Proportional and progressive income taxation with utility-maximizing governments," Public Choice, Springer, vol. 34(2), pages 217-230, June.
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