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Fiscal Restraints and Voter Welfare

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Author Info
Timothy Besley
Michael Smart

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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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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Political Economy and Public Policy Paper Series with number 06.

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Date of creation: Jul 2005
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Handle: RePEc:cep:stipep:06

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  1. Iwan Barankay & Ben Lockwood, 2006. "Decentralization and the Productive Efficiency of Government: Evidence from Swiss Cantons," IZA Discussion Papers 2477, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Angelino Viceisza, 2007. "An experimental inquiry into the effect of yardstick competition on corruption," Experimental Economics Center Working Paper Series 2007-09, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
    Other versions:
  3. Wolfgang Eggert & Peter Birch Sørensen, 2007. "The Effects of Tax Competition when Politicians Create Rents to Buy Political Support," EPRU Working Paper Series 07-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  4. Christos Kotsogiannis & Robert Schwager, 2006. "Fiscal Equalization and Yardstick Competition," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  5. Christos Kotsogiannis & Robert Schwager, 2006. "Fiscal Equalization and Yardstick Competition," Working Papers 2006-15, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
  6. Michela Redoano, 2007. "Fiscal Interactions Among European Countries. Does the EU Matter?," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  7. James E. Alt & David Dreyer Lassen & Shanna Rose, 2006. "The Causes of Fiscal Transparency: Evidence from the American States," EPRU Working Paper Series 06-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  8. Michael Smart & Daniel M. Sturm, 2006. "Term Limits and Electoral Accountability," CEP Discussion Papers dp0770, Centre for Economic Performance, LSE. [Downloadable!]
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  9. Klaas J. Beniers & Robert Dur, 2004. "Politicians' Motivation, Political Culture, and Electoral Competition," Tinbergen Institute Discussion Papers 04-065/1, Tinbergen Institute, revised 16 Aug 2005. [Downloadable!]
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  10. Paula González & Jean Hindriks & Ben Lockwood & Nicolás Porteiro, 2006. "Political Budget Cycles and Fiscal Decentralization," Working Papers 06.13, Universidad Pablo de Olavide, Departamento de Economía. [Downloadable!]
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  11. Krogstrup, Signe & Wyplosz, Charles, 2006. "A Common Pool Theory of Deficit Bias Correction," CEPR Discussion Papers 5866, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Claudio Ferraz & Frederico Finan, 2007. "Electoral Accountability and Corruption in Local Governments: Evidence from Audit Reports," IZA Discussion Papers 2843, Institute for the Study of Labor (IZA). [Downloadable!]
  13. Lars P. Feld & Gebhard Kirchgässner, 2004. "Sustainable Fiscal Policy in a Federal System: Switzerland as an Example," Marburg Working Papers on Economics 200424, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung). [Downloadable!]
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  14. Ben Lockwood & Michael Keen, 2007. "The Value-Added Tax: Its Causes and Consequences," IMF Working Papers 07/183, International Monetary Fund. [Downloadable!]
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  15. Daron Acemoglu & Michael Golosov & Aleh Tsyvinski, 2008. "Political Economy of Ramsey Taxation," Levine's Bibliography 122247000000002192, UCLA Department of Economics. [Downloadable!]
  16. Evrenk, Haldun, 2002. "Political economy of anti-corruption reform in two-candidate elections," MPRA Paper 1958, University Library of Munich, Germany, revised Jul 2006. [Downloadable!]
  17. Michael Keen, 2007. "VAT Attacks!," IMF Working Papers 07/142, International Monetary Fund. [Downloadable!]
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  18. Massimo Bordignon, 2007. "Exit and Voice. Yardstick versus Fiscal Competition across Governments," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  19. Daron Acemoglu & Mikhail Golosov & Aleh Tsyvinski, 2007. "Political Economy of Mechanisms," Levine's Bibliography 321307000000000886, UCLA Department of Economics. [Downloadable!]
    Other versions:
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