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Why are representative democracies fiscally irresponsible?

Author

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  • V. V. Chari
  • Harold L. 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.

Suggested Citation

  • V. V. Chari & Harold L. Cole, 1993. "Why are representative democracies fiscally irresponsible?," Staff Report 163, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmsr:163
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    References listed on IDEAS

    as
    1. V. V. Chari & Harold L. 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 642-664, August.
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    Cited by:

    1. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-236, March.
    2. Niepelt, Dirk, 2007. "Starving the beast? Intra-generational conflict and balanced budget rules," European Economic Review, Elsevier, vol. 51(1), pages 145-159, January.
    3. Toshihiro Ihori & Jun-Ichi Itaya, 2004. "Fiscal Reconstruction and Local Government Financing," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(1), pages 55-67, January.
    4. 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.
    5. Baqir, Reza, 1999. "Districts, spillovers, and government overspending," Policy Research Working Paper Series 2192, The World Bank.
    6. 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.
    7. Feld, Lars P. & Fritz, Benedikt, 2015. "The political economy of municipal amalgamation: Evidence of common pool effects and local public debt," Freiburg Discussion Papers on Constitutional Economics 15/10, Walter Eucken Institut e.V..
    8. Woo, Jaejoon, 2005. "Social polarization, fiscal instability and growth," European Economic Review, Elsevier, vol. 49(6), pages 1451-1477, August.

    More about this item

    Keywords

    Expenditures; Public;

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