Expert Politicians, Electoral Control, and Fiscal Restraints
AbstractFiscal restraints have been argued to force today’s governments to internalize the externalities that result from extensive borrowing on future electorates and governments as well as on other countries by causing fiscal instability. In this article we provide an alternative argument for fiscal restraints which is based on an agency perspective on government. A budget maximizing politician is better informed than the electorate about the necessary spending to ensure the states ability to provide services for the economy. In this respect, the politician is an expert in the meaning of the credence good literature. The electorate, being able to observe the budget but not the necessary level of spending, will reelect a government if its budget does not exceed a critical level. A fiscal restraint limits the maximum spending a government will choose if the reelection level is not sufficient to ensure the state’s ability to provide services to the economy. We determine when such a fiscal restraint improves voter welfare and discuss the role of the opposition in situations where very high levels of spending are required.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3738.
Date of creation: 2012
Date of revision:
electoral control; fiscal restraints; credence goods;
Other versions of this item:
- Uwe Dulleck & Berthold U Wigger, 2012. "Expert Politicians, Electoral Control, and Fiscal Restraints," NCER Working Paper Series 79, National Centre for Econometric Research.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
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