Discussion Paper Details

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Title: Separation of Powers and the Budget Process

Author(s): Gene M. Grossman and Elhanan Helpman

Publication Date: July 2006

Keyword(s): comparative political economics, fiscal policy, government spending and pork-barrel politics

Programme Area(s): Public Economics

Abstract: We study budget formation in a model featuring separation of powers. In our model, the legislature designs a budget bill that can include a cap on total spending and earmarked allocations to designated public projects. Each project provides random benefits to one of many interest groups. The legislature can delegate spending decisions to the executive, who can observe the productivity of all projects before choosing which to fund. However, the ruling coalition in the legislature and the executive serve different constituencies, so their interests are not perfectly aligned. We consider settings that differ in terms of the breadth and overlap in the constituencies of the two branches, and associate these with the political systems and circumstances under which they most naturally arise. Earmarks are more likely to occur when the executive serves broad interests, while a binding budget cap arises when the executive's constituency is more narrow than that of the powerful legislators.

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Bibliographic Reference

Grossman, G and Helpman, E. 2006. 'Separation of Powers and the Budget Process'. London, Centre for Economic Policy Research.