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Fiscal restraints and voter welfare

By Timothy Besley and Michael Smart

Abstract

This paper explores the logic of fiscal 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 inefficient taxation, limits on the size of government, increasing transparency, and yardstick competition. Some conclusions are surprising. For example, we show that some forms of fiscal restraint can only be desirable when incumbents are sufficiently likely to be benevolent

Topics: HB Economic Theory, JF Political institutions (General)
Publisher: Elsevier
Year: 2007
DOI identifier: 10.1016/j.jpubeco.2006.09.009
OAI identifier: oai:eprints.lse.ac.uk:33711
Provided by: LSE Research Online
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