Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 898: Federal Governments Should Subsidize State Expenditure that Voters do not Consider when Voting

Thomas Aronsson () and David Granlund ()
Additional contact information
Thomas Aronsson: Department of Economics, Umeå School of Business and Economics, Postal: Umeå University, S 901 87 Umeå, Sweden
David Granlund: Department of Economics, Umeå School of Business and Economics, Postal: Umeå University, S 901 87 Umeå, Sweden

Abstract: This short paper analyzes whether a federal transfer system can be designed to increase welfare, when state governments create political budget cycles to increase the likelihood of reelection. The results show how the federal government may announce a transfer scheme in advance for the post-election year that counteracts the welfare costs of political budget cycles.

Keywords: Political economy; intergovernmental transfer; budget cycle

JEL-codes: D61; D72; H71

10 pages, November 13, 2014

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