Fiscal Restraints and Voter Welfare

32 Pages Posted: 11 Jul 2008

See all articles by Timothy J. Besley

Timothy J. Besley

London School of Economics & Political Science (LSE) - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Michael Smart

University of Toronto - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 2005

Abstract

This paper explores the logic of &scal restraints in a political agency model with both moral hazard and adverse selection. The role of the political process is both to discipline incumbents who may act against the public interest and to sort in those politicians who are most likely act in voters'interests. We use the model to examine the optimality of ine¢ cient taxation, limits on the size of government, increasing trans- parency, and yardstick competition. Some conclusions are surprising. For example, we show that some forms of &scal restraint can only be desirable when incumbents are su¢ ciently likely to be benevolent. We are grateful to Jim Hines and a number of seminar participants for insightful comments. 1

JEL Classification: I21, O15

Suggested Citation

Besley, Timothy J. and Smart, Michael, Fiscal Restraints and Voter Welfare (July 2005). LSE STICERD Research Paper No. PEPP06, Available at SSRN: https://ssrn.com/abstract=1158328

Timothy J. Besley (Contact Author)

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Michael Smart

University of Toronto - Department of Economics ( email )

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