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Legislative Bargaining and Incremental Budgeting

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  • Dhammika Dharmapala

    (University of Connecticut)

Abstract

The notion of 'incrementalism', formulated by Aaron Wildavsky in the 1960's, has been extremely influential in the public budgeting literature. In essence, it entails the claim that legislators engaged in budgetary policymaking accept past allocations, and decide only on the allocation of increments to revenue. Wildavsky explained incrementalism with reference to the cognitive limitations of lawmakers and their desire to reduce conflict. This paper uses a legislative bargaining framework to undertake a formal analysis of incremental budgeting. An exogenously chosen agenda setter proposes budgets and seeks to build coalitions to secure passage, over multiple periods. The central result is that the agenda setter can lower her cost of building a winning coalition, and thereby raise her payoff, by following an incrementalist strategy, which involves maintaining the same coalition every period. First, it is shown within a simple 2-period model that there exist subgame perfect 'incremental budgeting' equilibria of this nature. If the agenda setter is assumed to be able to commit to the 'grandfathering' of past allocations, the unique subgame perfect equilibrium (up to the choice of the coalition members) involves incremental budgeting. The model is then extended to an infinitely repeated setting, and it is shown that the agenda setter's incentives for incremental budgeting are reinforced in this context. Some testable implications (relating incrementalism to various characteristics of the legislature) are also derived. Finally, the implications for incrementalism of heterogeneity among legislators are analyzed.

Suggested Citation

  • Dhammika Dharmapala, 2002. "Legislative Bargaining and Incremental Budgeting," Working papers 2002-10, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:uconnp:2002-10
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    References listed on IDEAS

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    1. Roger B. Myerson, 1992. "Incentives to Cultivate Favored Minorities under Alternative Electoral Systems," Discussion Papers 1000, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Diermeier, Daniel & Merlo, Antonio, 2000. "Government Turnover in Parliamentary Democracies," Journal of Economic Theory, Elsevier, vol. 94(1), pages 46-79, September.
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    4. Leblanc, William & Snyder, James Jr. & Tripathi, Micky, 2000. "Majority-rule bargaining and the under provision of public investment goods," Journal of Public Economics, Elsevier, vol. 75(1), pages 21-47, January.
    5. Crain, W. Mark & Crain, Nicole Verrier, 1998. "Fiscal consequences of budget baselines," Journal of Public Economics, Elsevier, vol. 67(3), pages 421-436, March.
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    8. Dharmapala, Dhammika, 1999. "Comparing tax expenditures and direct subsidies: the role of legislative committee structure," Journal of Public Economics, Elsevier, vol. 72(3), pages 421-454, June.
    9. repec:cup:apsrev:v:87:y:1993:i:04:p:856-869_10 is not listed on IDEAS
    10. Brian Knight, 2004. "Bargaining in Legislatures: An Empirical Investigation," NBER Working Papers 10530, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Legislative bargaining; incremental budgeting; budgetary institutions;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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