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Mandatory Versus Discretionary Spending: the Status Quo Effect

  • T. Renee Bowen
  • Ying Chen
  • Hülya Eraslan

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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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. marina, azzimonti, 2009. "Barriers to investment in polarized societies," MPRA Paper 25936, University Library of Munich, Germany.
  3. Kalandrakis, Anastassios, 2004. "A three-player dynamic majoritarian bargaining game," Journal of Economic Theory, Elsevier, vol. 116(2), pages 294-322, June.
  4. Vincent Anesi, 2007. "Noncooperative Foundations of Stable Sets in Voting Games," Discussion Papers 2007-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  5. Daron Acemoglu & Michael Golosov & Aleh Tsyvinski, 2009. "Power Fluctuations and Political Economy," EIEF Working Papers Series 0911, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2009.
  6. John Duggan & Tasos Kalandrakis, 2007. "Dynamic Legislative Policy Making," Wallis Working Papers WP45, University of Rochester - Wallis Institute of Political Economy.
  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. 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.
  9. 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.
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