Expert Politicians, Electoral Control, and Fiscal Restraints

34 Pages Posted: 21 Feb 2012

See all articles by Uwe Dulleck

Uwe Dulleck

Queensland University of Technology - School of Economics and Finance

Berthold U. Wigger

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

Date Written: February 21, 2012

Abstract

Fiscal restraints have been argued to force today’s governments to internalize the externalities that result from extensive borrowing on future electorates and governments as well as on other countries by causing fiscal instability. In this article we provide an alternative argument for fiscal restraints which is based on an agency perspective on government. A budget maximizing politician is better informed than the electorate about the necessary spending to ensure the states ability to provide services for the economy. In this respect, the politician is an expert in the meaning of the credence good literature. The electorate, being able to observe the budget but not the necessary level of spending, will reelect a government if its budget does not exceed a critical level. A fiscal restraint limits the maximum spending a government will choose if the reelection level is not sufficient to ensure the state’s ability to provide services to the economy. We determine when such a fiscal restraint improves voter welfare and discuss the role of the opposition in situations where very high levels of spending are required.

Keywords: electoral control, fiscal restraints, credence goods

JEL Classification: D820, H500, H610

Suggested Citation

Dulleck, Uwe and Wigger, Berthold U., Expert Politicians, Electoral Control, and Fiscal Restraints (February 21, 2012). CESifo Working Paper Series No. 3738. Available at SSRN: https://ssrn.com/abstract=2008613

Uwe Dulleck

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Berthold U. Wigger (Contact Author)

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany
+49 621 181 1797 (Phone)
+49 621 181 1794 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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