"Inefficiency in Legislative
Policy-Making: A Dynamic Analysis"
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.