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Federal subsidization of state expenditure to reduce political budget cycles

Author

Listed:
  • Thomas Aronsson

    (Umeå University)

  • David Granlund

    (Umeå University)

Abstract

In this note, we analyze whether a federal transfer system can be designed to increase welfare when state governments create political budget cycles. The results show how the federal government can counteract the welfare costs of these cycles, without hindering politicians from signaling their type, by announcing a transfer scheme to subsidize expenditures that voters do not consider when voting.

Suggested Citation

  • Thomas Aronsson & David Granlund, 2017. "Federal subsidization of state expenditure to reduce political budget cycles," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(3), pages 536-545, June.
    • Handle: RePEc:kap:itaxpf:v:24:y:2017:i:3:d:10.1007_s10797-016-9404-5
    DOI: 10.1007/s10797-016-9404-5
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    References listed on IDEAS

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    Cited by:

    1. Björn Kauder & Manuela Krause & Niklas Potrafke, 2018. "Electoral cycles in MPs’ salaries: evidence from the German states," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(4), pages 981-1000, August.

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    More about this item

    Keywords

    Political economy; Intergovernmental transfer; Budget cycle;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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