Working Paper: CEPR ID: DP269
Authors: Guido Tabellini; Alberto Alesina
Abstract: This paper analyzes a model in which different rational individuals vote over the composition and time profile of public spending. Potential disagreement between current and future majorities generates instability in the social choice function that aggregates individual preferences. In equilibrium a majority of the voters may favor a budget deficit. The size of the deficit under majority rule tends to be larger, the greater is the polarization between current and potential future majorities. The paper also shows that the ex ante efficient equilibrium of this model involves a balanced budget. A balanced budget amendment, however, is not durable under majority rule.
Keywords: budget deficits; majority rule; political polarization
JEL Codes: 025; 320
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| political polarization (D72) | budget deficits (H62) |
| preference divergence (D11) | budget deficits (H62) |
| current voters anticipate future preferences (D72) | willingness to commit to a balanced budget (H61) |