Inefficiency in Legislative Policy-Making: A Dynamic Analysis

Marco Battaglini, Stephen Coate

NBER Working Paper No. 11495
Issued in August 2005
NBER Program(s):   PE   POL

This paper develops an infinite horizon model of public spending and taxation in which policy

decisions are determined by legislative bargaining. The policy space incorporates both productive

and distributive public spending and distortionary taxation. The productive spending is investing in

a public good that benefits all citizens (e.g., national defense or air quality) and the distributive

spending is district-specific transfers (e.g., pork barrel spending). Investment in the public good

creates a dynamic linkage across policy-making periods. The analysis explores the dynamics of

legislative policy choices, focusing on the efficiency of the steady state level of taxation and

allocation of tax revenues. The model sheds new light on the efficiency of legislative policy-making

and has a number of novel positive implications.

(616 K)

Published: Marco Battaglini & Stephen Coate, 2007. "Inefficiency in Legislative Policymaking: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 97(1), pages 118-149, March.

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