Fiscal Bargaining and the Implicit Fiscal Constitutions of Liberal Democracies: A Public Choice Perspective

This paper analyzes the nature of intragovernmental bargains in settings where there are democratic pressures that motivate or constrain the procedures and constraints that the legislature and bureaucracy use for adopting fiscal policies. When democratic impulses are strong, the procedures will tend to align the interests of both the legislature and bureaucracy with general voter interests. When they are weak, the procedures will tend to favor special interests over general ones. When democratic pressures are substantial, the result is a pattern of taxation and expenditures that is at least as stable as the interests of voter interests. Electoral pressures and the stable procedures through which fiscal policies are adopted thus generate a complex political bargaining equilibrium—which to the extent that such equilibria are stable can be regarded as a nation’s fiscal constitution.