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Mandatory Versus Discretionary Spending: The Status Quo Effect

  • T. Renee Bowen

    (Stanford University)

  • Ying Chen

    (Arizona State University)

  • Hulya Eraslan

    (Johns Hopkins University)

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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File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1229.pdf
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Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1229.

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Length: 49 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:koc:wpaper:1229
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  1. 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.
  2. Song, Zheng Michael & Storesletten, Kjetil & Zilibotti, Fabrizio, 2012. "Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt," CEPR Discussion Papers 8738, C.E.P.R. Discussion Papers.
  3. Marina Azzimonti, 2009. "Barriers to investment in polarized societies," 2009 Meeting Papers 1233, Society for Economic Dynamics.
  4. Alessandro Riboni & Facundo Piguillem, 2011. "Dynamic Bargaining over Redistribution in Legislatures," 2011 Meeting Papers 1320, Society for Economic Dynamics.
  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. 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.
  7. Kalandrakis, Anastassios, 2004. "A three-player dynamic majoritarian bargaining game," Journal of Economic Theory, Elsevier, vol. 116(2), pages 294-322, June.
  8. Duggan, John & Kalandrakis, Tasos, 2012. "Dynamic legislative policy making," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1653-1688.
  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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