A Theory of Cyclical Production of Laws and Decrees

This paper provides a theory explaining the observed cyclical pattern of the approbation of laws and decrees through a legislature. We study an environment with three (sets of) agents, an incumbent government, unorganized voters and special interest groups. Special interest groups differ from voters in that they are better informed and can transfer private resources to the government. In return from votes and resources, the government provides two types of goods that differ in terms of their redistributive profile, a general public good and a targeted club good. To produce these goods the government must approve legislation either in the form of laws visible to all agents or decrees visible only to special interest groups. We show that the legislator generates an electoral cycle of the general public good at the end of the legislature by distorting upwards the production of laws to increase his probability of being re-elected. To signal his competence and collect the resources for the electoral campaign from the special interest groups, he also generates a pre-electoral cycle of the targeted good by distorting upwards the production of decrees. The theoretical results match the findings of the empirical literature, that detects a decree cycle at the beginning of the legislature and a law cycle at its the end.