Working Paper: NBER ID: w11495
Authors: Marco Battaglini; Stephen Coate
Abstract: This paper develops an infinite horizon model of public spending and taxation in which policy \ndecisions are determined by legislative bargaining. The policy space incorporates both productive \nand distributive public spending and distortionary taxation. The productive spending is investing in \na public good that benefits all citizens (e.g., national defense or air quality) and the distributive \nspending is district-specific transfers (e.g., pork barrel spending). Investment in the public good \ncreates a dynamic linkage across policy-making periods. The analysis explores the dynamics of \nlegislative policy choices, focusing on the efficiency of the steady state level of taxation and \nallocation of tax revenues. The model sheds new light on the efficiency of legislative policy-making \nand has a number of novel positive implications.
Keywords: legislative bargaining; public goods; taxation; pork barrel spending; government size
JEL Codes: D7
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Legislative decisions (D72) | Size of government (H11) |
| Legislative decisions (D72) | Public good levels (H49) |
| Allocation of resources (D61) | Public good levels (H49) |
| Legislative decisions (D72) | Pork barrel spending (H56) |
| Public good investment (H40) | Future implications for public good (H40) |
| Legislative decisions (D72) | Inefficient allocation of resources (D61) |
| Legislators holding back on public good spending (H72) | Prevent future pork barrel spending (H57) |