Inefficient public provision in a political agency model

2006

We extend the model of to a dynamic setting with no policy commitment. Two parties that compete for election must choose the level of provision of a public good as well as the tax payment needed to finance it. The cost of producing the good may be high or low and this information is not known to the voters. We show that there exists an equilibrium in which the party that does not want much of the public good uses the inefficient (high cost) technology even though the efficient one is available. Using the low cost technology would, by informing the voters about the cost parameter, force it to produce an excessively high level of the good in the future. Interestingly, this equilibrium is not symmetric, suggesting that a party with a strong taste for the public good is less likely to adopt a wasteful policy.

2004

We extend the model of Schultz (1996) to a dynamic setting with no policy commitment. Two parties that compete for election must choose the level of provision of a public good as well as the tax payment needed to finance it. The cost of producing the good may be high or low and this information is not known to the voters. We show that there exists an equilibrium in which the party that does not want much of the public good use the inefficient (high cost) technology even though the efficient one is available. Using the low cost technology would, by informing the voters about the cost parameter, force it to produce an excessively high level of the good. Interestingly, this equilibrium is not symmetric, suggesting that a party with a strong taste for the public good is less likely to adopt a wasteful policy.

Journal of Public Economic Theory, 2007

We consider a dynamic setting with no policy commitment. Two parties that compete for election must choose the level of provision of a public good as well as the tax payment needed to finance it. The cost of producing the good may be high or low and this information is not known to the voters. We show that there exists an equilibrium in which the party that does not want much of the public good uses the inefficient (high cost) technology even though the efficient one is available. Using the low cost technology would, by informing the voters about the cost parameter, force it to produce an excessively high level of the good in the future. Interestingly, this equilibrium is not symmetric, suggesting that a party with a strong taste for the public good is less likely to adopt a wasteful policy.

The aim of this paper is to develop a model that considers the existence of two tiers of government providing public goods with the same tax base to finance them. Their rent is related to the level of competition. Citizens need to maximize their own utility starting from these different levels of competition. Therefore, they can decide to turn down the governments to induce them to behave efficiently. Moreover, governments can choose whether to accept the behaviour proposed by citizens or to maximize their rent for a single period of office of the legislature and consequently loose the next elections.

The aim of this paper is to develop a model that includes two tiers of government providing public goods with the same tax base to finance them. Their rent is related to the level of competition. Citizens maximize their own utility starting from these different levels of competition. Therefore, they can decide to turn down the governments to induce them to behave efficiently. Moreover, governments can choose whether to accept the behaviour urged by citizens or to maximize their rent for a single period of office and consequently lose the next elections.

Journal of Economic Theory, 2007

This paper analyzes an overlapping generation model of redistribution and public good provision under repeated voting. Expenditures are financed through agedependent taxation that distorts human capital investment. Taxes redistribute income both across different skill groups and across generations. We explore how the politico-economic Markov equilibria vary with the design of the redistributive policies governments can adopt. The political outcomes are contrasted with the Ramsey allocation under commitment. The model features indeterminate equilibria, with a key role of forward-looking strategic voting. Due to the lack of commitment to future policies, the tax burden may be on the wrong side of the dynamic Laffer curve. Moreover, restrictions on government policies can in some cases be welfare improving.

Journal of Public Economics, 2005

This paper argues that, in models with heterogeneous agents, the concept of the marginal cost of public funds (MCPF) will only be useful if it is compared with an analogous concept for the benefit side. The MCPF does not assume a unique value and is not particularly illuminating in and out of itself. Also gone is the benchmark status of MCPF = 1. Turning to the provision of public goods, using a mechanism design approach, the paper constructs a two-stage proof for Kaplow's [Kaplow, L., 1996. The optimal supply of public goods and the distortionary cost of taxation. National Tax Journal 49, 513-533.] proposition concerning the birrelevanceQ of labor supply and distributional concerns in public good provision. This highlights the two fundamental ingredients for his result. First, the provision of public goods per se, when it satisfies the Samuelson's rule, is only potentially Pareto-improving. Second, the actual Pareto improvement will materialize when, or if, one reforms the income tax structure. If the reform is not forthcoming, the decision on public goods provision must rely on redistributional concerns. Finally, the paper generalizes Broadway and Keen's [Boadway, R., Keen, M., 1993. Public goods, self-selection and optimal income taxation. International Economic Review 34, 463-478.] result to a model with many types of agents, many private goods and without making any assumptions regarding which self-selection constraints are or are not binding.

2001

The paper derives a complete system of demand equations for public consumption expenditures as the outcome of rational behaviour in a model where government maximizes expected electoral support. The allocation of expenditures is found to depend not only on the prices of public services and total expenditure and to satisfy the constraints of demand theory, which have been the focus of attention of previous empirical studies of the allocation of public expenditures, but, in addition, on the prices of private consumption goods, the distribution of voter incomes and the expected change in voter support from varying the levels of public provision.

Journal of Public Economic Theory, 2005

This paper provides a positive analysis of public provision of excludable public goods financed by uniform taxes or fees. Individuals differing in preferences decide, using majority rule, the provision level and financing instrument. The decisive voter has median preferences in a tax regime, but generally has above median preferences in a fee regime. Numerical solutions indicate that populations with uniform or left-skewed distributions of preferences choose taxes, while a majority coalition of high-and low-preference individuals prefer fees when preferences are sufficiently right skewed. Public good provision and welfare under fees exceeds that under taxes in the latter case.

Journal of Public Economics, 2016

In this paper, we study the optimal provision of a costly public good using an average efficiency criterion. For every fixed cost, we identify a quota mechanism as the optimal mechanism among those that are dominant-incentive-compatible, deficit-free and kind. Moreover, we also consider the asymmetric case and demonstrate that a committee mechanism is optimal for a large class of mechanisms. In particular, this mechanism dominates all VCG (pivotal) mechanisms.