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Inefficiency in Legislative Policy-Making: A Dynamic Analysis

  • Stephen Coate
  • Marco Battaglini

    ()

    (Economics Princeton University)

This paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining. The policy space incorporates both productive and distributive public spending and distortionary taxation. The productive spending is investing in a public good that benefits all citizens (e.g., national defense or air quality) and the distributive spending is district-specific transfers (e.g., pork barrel spending). Investment in the public good creates a dynamic linkage across policy-making periods. The analysis explores the dynamics of legislative policy choices, focusing on the efficiency of the steady state level of taxation and allocation of tax revenues. The model sheds new light on the efficiency of legislative policy-making and has a number of novel positive implications.

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Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 209.

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Date of creation: 2005
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Handle: RePEc:red:sed005:209
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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