Voting on the Budget Deficit
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NBER Working Paper No. 2759
Issued in November 1988
NBER Program(s): ME
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.
Published: American Economic Review, vol. 80, no. 1, pp. 37-49, March 1990.
This paper is available as PDF (282 K) or DjVu (177 K) (Download viewer) or via email.
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