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Fiscal restraints by advisors

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  • Shun-ichiro Bessho
  • Kimiko Terai

Abstract

This study investigates the role of fiscal advisors in maintaining government fiscal discipline when the advisor’s appointment is determined endogenously. Our theoretical model shows that an incumbent politician has an incentive to employ an external advisor as a commitment device for fiscal discipline before being aware of his own competence level. The advisor acts as a restraint on public expenditure, which works to control the incumbent politician’s ex post overspending to buy votes. Our empirical analysis supports this hypothesis in the Japanese case where governments with directors from the central government tend to spend less. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Shun-ichiro Bessho & Kimiko Terai, 2013. "Fiscal restraints by advisors," Economics of Governance, Springer, vol. 14(3), pages 205-232, August.
    • Handle: RePEc:spr:ecogov:v:14:y:2013:i:3:p:205-232
    DOI: 10.1007/s10101-013-0127-0
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    More about this item

    Keywords

    Delegation of policy making; Fiscal restraints; Personnel interchange; Re-election; D72; D73; D82; H72; H77;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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