Macroeconomics Commons^™

An Implementable Institutional Reform That Transfers Control Of Government Spending Levels From Politicians To Voters, Philip E. Graves

PHILIP E GRAVES

Elected representatives have little incentive to pursue the interests of those electing them once they are elected. This well-known principle-agent problem leads, in a variety of theories of government, to non-optimally large levels of government expenditure. An implication is that budgetary rules are seen as necessary to constrain politicians' tax and spending behavior. Popular among such constraints are various Balanced Budget Amendment proposals. These approaches, however, are shown here to have serious limitations, including failure to address the central concern of spending level. An alternative approach is advanced here that relies on a Coase-like mechanism that transfers control of government …