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Fiscal restraints and voter welfare

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  • Besley, Timothy
  • Smart, Michael

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

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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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  1. Peltzman, Sam, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(2), pages 327-61, May.
  2. Bengt Holmstrom, 1997. "Moral Hazard and Observability," Levine's Working Paper Archive 1205, David K. Levine.
  3. Gary S. Becker & Casey B. Mulligan, 1998. "Deadweight Costs and the Size of Government," NBER Working Papers 6789, National Bureau of Economic Research, Inc.
  4. Revelli, Federico, 2002. "Local taxes, national politics and spatial interactions in English district election results," European Journal of Political Economy, Elsevier, vol. 18(2), pages 281-299, June.
  5. Salmon, Pierre, 1987. "Decentralisation as an Incentive Scheme," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 3(2), pages 24-43, Summer.
  6. Peltzman, Sam, 1980. "The Growth of Government," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 23(2), pages 209-87, October.
  7. Paul Belleflamme & Jean Hindriks, 2005. "Yardstick competition and political agency problems," Social Choice and Welfare, Springer, Springer, vol. 24(1), pages 155-169, 09.
  8. James Buchanan & Roger Congleton, 1979. "Proportional and progressive income taxation with utility-maximizing governments," Public Choice, Springer, Springer, vol. 34(2), pages 217-230, June.
  9. Timothy Besley & Anne Case, 1992. "Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition," NBER Working Papers 4041, National Bureau of Economic Research, Inc.
  10. Laffont, Jean-Jacques, 2001. "Incentives and Political Economy," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199248681, October.
  11. North, Douglass C., 1985. "The growth of government in the United States: An economic historian's perspective," Journal of Public Economics, Elsevier, Elsevier, vol. 28(3), pages 383-399, December.
  12. Martin Bodenstein & Heinrich Ursprung, 2005. "Political yardstick competition, economic integration, and constitutional choice in a federation:," Public Choice, Springer, Springer, vol. 124(3), pages 329-352, September.
  13. James E. Alt & David Dreyer Lassen, 2003. "Fiscal Transparency and Fiscal Policy Outcomes in OECD Countries," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 03-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  14. Meyer, Margaret A & Vickers, John, 1995. "Performance Comparisons and Dynamic Incentives," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1107, C.E.P.R. Discussion Papers.
  15. Fischer, Stanley & Summers, Lawrence H, 1989. "Should Governments Learn to Live with Inflation?," American Economic Review, American Economic Association, American Economic Association, vol. 79(2), pages 382-87, May.
  16. Andrea Prat, 2005. "The Wrong Kind of Transparency," American Economic Review, American Economic Association, American Economic Association, vol. 95(3), pages 862-877, June.
  17. Jeremy Edwards & Michael Keen, 1994. "Tax competition and Leviathon," IFS Working Papers, Institute for Fiscal Studies W94/07, Institute for Fiscal Studies.
  18. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
  19. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, Springer, vol. 14(1), pages 19-42, March.
  20. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, Springer, vol. 50(1), pages 5-25, January.
  21. Massimo Bordignon & Floriana Cerniglia & Federico Revelli, 2002. "In Search for Yardstick Competition: Property Tax Rates and Electoral Behavior in Italian Cities," CESifo Working Paper Series 644, CESifo Group Munich.
  22. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1996. "Are consumption taxes really better than income taxes?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 37(3), pages 475-503, June.
  23. John Douglas Wilson, 1989. "An Optimal Tax Treatment Of Leviathan," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 1(2), pages 97-117, 07.
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