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Mandatory Versus Discretionary Spending: the Status Quo Effect

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  • T. Renee Bowen
  • Ying Chen
  • Hülya Eraslan

Abstract

Do mandatory spending programs such as Medicare improve efficiency? We analyze a model with two parties allocating a fixed budget to a public good and private transfers each period over an infinite horizon. We compare two institutions that differ in whether public good spending is discretionary or mandatory. We model mandatory spending as an endogenous status quo since it is enacted by law and remains in effect until changed. Mandatory programs result in higher public good spending; furthermore, they ex ante Pareto dominate discretionary programs when parties are patient, persistence of power is low, and polarization is low.

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Bibliographic Info

Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 603.

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Date of creation: Oct 2012
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Handle: RePEc:jhu:papers:603

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  1. Song, Zheng & Storesletten, Kjetil & Zilibotti, Fabrizio, 2007. "Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt," Memorandum 05/2008, Oslo University, Department of Economics.
  2. Vincent Anesi, 2009. "Noncooperative Foundations of Stable Sets in Voting Games," RCER Working Papers 551, University of Rochester - Center for Economic Research (RCER).
  3. John Duggan & Tasos Kalandrakis, 2007. "Dynamic Legislative Policy Making," Wallis Working Papers WP45, University of Rochester - Wallis Institute of Political Economy.
  4. marina, azzimonti, 2009. "Barriers to investment in polarized societies," MPRA Paper 25936, University Library of Munich, Germany.
  5. Acemoglu, Daron & Golosov, Mikhail & Tsyvinski, Aleh, 2011. "Power fluctuations and political economy," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1009-1041, May.
  6. Kalandrakis, Anastassios, 2004. "A three-player dynamic majoritarian bargaining game," Journal of Economic Theory, Elsevier, vol. 116(2), pages 294-322, June.
  7. Facundo Piguillem & Alessandro Riboni, 2012. "Dynamic Bargaining over Redistribution in Legislatures," EIEF Working Papers Series 1206, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2012.
  8. Wioletta Dziuda & Antoine Loeper, 2010. "Dynamic Collective Choice with Endogenous Status Quo," Discussion Papers 1514, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Vincent Anesi & Daniel J Seidmann, 2012. "Bargaining in Standing Committees," Discussion Papers 2012-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
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Cited by:
  1. Baron, David P. & Bowen, T. Renee, 2013. "Dynamic Coalitions," Research Papers 2128, Stanford University, Graduate School of Business.
  2. Facundo Piguillem & Alessandro Riboni, 2013. "Spending Biased Legislators - Discipline Through Disagreement," EIEF Working Papers Series 1317, Einaudi Institute for Economics and Finance (EIEF), revised Jul 2013.

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