An Implementable Institutional Reform that Transfers Control of Government Spending Levels from Politicians to Voters

17 Pages Posted: 22 Mar 2009 Last revised: 31 Dec 2011

See all articles by Philip E. Graves

Philip E. Graves

University of Colorado at Boulder - Department of Economics

Date Written: July 1, 2009

Abstract

Elected representatives have little incentive to pursue the interests of those electing them once they are elected. This well-known principle-agent problem leads, in a variety of theories of government, to non-optimally large levels of government expenditure. An implication is that budgetary rules are seen as necessary to constrain politicians' tax and spending behavior. Popular among such constraints are various Balanced Budget Amendment proposals. These approaches, however, are shown here to have serious limitations, including failure to address the central concern of spending level. An alternative approach is advanced here that relies on a Coase-like mechanism that transfers control of government spending to the voter. Prisoner's dilemma incentives and political competition are seen to be critical to the superiority of the present mechanism to approaches requiring budget balance.

Keywords: balanced-budget amendments, rent seeking, bureaucracy, scope of government, national budget, deficits, debt, political economy

JEL Classification: A12, D23, D71, D72, D78, H11, H61, H62, P17

Suggested Citation

Graves, Philip E., An Implementable Institutional Reform that Transfers Control of Government Spending Levels from Politicians to Voters (July 1, 2009). Available at SSRN: https://ssrn.com/abstract=1365481 or http://dx.doi.org/10.2139/ssrn.1365481

Philip E. Graves (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309-0256
United States

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