HERO On line Working Paper Series
Budget deficits as devices for appropriating extra funds: An investigation of sharing rules
Abstract: This paper considers a model with a sponsor and several
bureaus to analyse the role of sharing rules. Various incentives for budget
overspending are identified; among them the overspending of budgets due to
soft budget constraints. Four different sharing rules are also considered
that differ with respect to their strategic properties and whether the
share is exogenous or endogenous.
The results show that sharing on the
basis of egalitarian principles yields a lower budget deficit than sharing
based upon relative deficits both in symmetric and asymmetric games. The
ranking of deficits that follow from sharing based upon relative budgets
and sharing that equalises ex-post debt ratios is shown to depend on the
properties of the health production function.
Keywords: Budget deficits; bailouts; appropriating activities; (follow links to similar papers)
JEL-Codes: D29; H72; I18; (follow links to similar papers)
21 pages, June 29, 2009
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