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EnglishThe rationale for fiscal rules and institutions has been explained by the existence of deficit and spending biases that arise due to political fragmentation within gov- ernment or between governments that alternate in office. In common pool models fiscal outcomes are determined by the decision-making rule that is used to aggregate conflicting interests into a single budget and they can affect spending bias. Several institutional responses are possible for internalizing the overall costs of budgetary programs. These costs could be internalized by giving a strong mandate to the min- ister of finance, whose role is to consider the overall effects of policies. This paper analyses a model in which the minister of finance internalizes the common pool bud- get’s externality. First, we consider a model where all ministers play simultaneously, and MF acts as a spending minister. In order to capture the institutional framework, where MF takes in account the budget equilibrium, we have modelled the interaction in a sequential way. Under this assumption the minister of finance maximizes his utility function as a leader. In a sequential equilibrium, leader’s expenditure choice is greater than in simultaneous result, while the deficit bias is lower due to agenda setting power over spending ministers.
| Titolo: | The common pool problem of intergovernmental interactions |
| Autori: | |
| Data di pubblicazione: | 2014 |
| Abstract: | The rationale for fiscal rules and institutions has been explained by the existence of deficit and spending biases that arise due to political fragmentation within gov- ernment or between governments that alternate in office. In common pool models fiscal outcomes are determined by the decision-making rule that is used to aggregate conflicting interests into a single budget and they can affect spending bias. Several institutional responses are possible for internalizing the overall costs of budgetary programs. These costs could be internalized by giving a strong mandate to the min- ister of finance, whose role is to consider the overall effects of policies. This paper analyses a model in which the minister of finance internalizes the common pool bud- get’s externality. First, we consider a model where all ministers play simultaneously, and MF acts as a spending minister. In order to capture the institutional framework, where MF takes in account the budget equilibrium, we have modelled the interaction in a sequential way. Under this assumption the minister of finance maximizes his utility function as a leader. In a sequential equilibrium, leader’s expenditure choice is greater than in simultaneous result, while the deficit bias is lower due to agenda setting power over spending ministers. |
| Handle: | http://hdl.handle.net/11386/4626057 |
| Appare nelle tipologie: | 7.12 Altro |
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