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Why are representative democracies fiscally irresponsible?

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  • V.V. Chari
  • Harold Cole

Abstract

We develop a model of a representative democracy in which a legislature makes collective decisions about local public goods expenditures and how they are financed. In our model of the political process legislators defer to spending requests of individual representatives, particularly committee chairmen, who tend to promote spending requests that benefit their own districts. Because legislators do not fully internalize the tax consequences of their individual spending proposals, there is a free rider problem, and as a result spending is excessively high. This leads legislators to prefer a higher level of debt to restrain excessive future spending.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 163.

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Date of creation: 1993
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Handle: RePEc:fip:fedmsr:163

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Keywords: Expenditures; Public;

References

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  1. V.V. Chari & Harold Cole, 1993. "A contribution to the theory of pork barrel spending," Staff Report 156, Federal Reserve Bank of Minneapolis.
  2. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
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Citations

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Cited by:
  1. Stephen Coate & Marco Battaglini, 2007. "A Dynamic Theory of Public Spending, Taxation and Debt," 2007 Meeting Papers 573, Society for Economic Dynamics.
  2. Toshihiro Ihori & Jun-Ichi Itaya, 2004. "Fiscal Reconstruction and Local Government Financing," International Tax and Public Finance, Springer, vol. 11(1), pages 55-67, January.
  3. Bianconi, Marcelo, 2000. "The effects of alternative fiscal policies on the intertemporal government budget constraint," International Review of Economics & Finance, Elsevier, vol. 9(1), pages 31-52, February.
  4. Niepelt, Dirk, 2007. "Starving the beast? Intra-generational conflict and balanced budget rules," European Economic Review, Elsevier, vol. 51(1), pages 145-159, January.
  5. Takero Doi & Toshihiro Ihori & Hiroki Kondo, 2002. "Government Deficits, Political Inefficiency, and Fiscal Reconstruction in Japan," Annals of Economics and Finance, Society for AEF, vol. 3(1), pages 169-183, May.
  6. Baqir, Reza, 1999. "Districts, spillovers, and government overspending," Policy Research Working Paper Series 2192, The World Bank.
  7. Woo, Jaejoon, 2005. "Social polarization, fiscal instability and growth," European Economic Review, Elsevier, vol. 49(6), pages 1451-1477, August.

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