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2015 | OriginalPaper | Chapter

7. Budgets Under Delegation

Authors : Kimiko Terai, Amihai Glazer

Published in: The Political Economy of Fiscal Consolidation in Japan

Publisher: Springer Japan

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Abstract

Consider a principal who sets a budget that the agent allocates among different services. Because the preferences of the agent may differ from those of the principal, the budget the principal sets can be lower or higher than in the first-best solution. When the principal is uncertain about the agent’s preferences, the agent may choose an allocation that signals his type, thereby affecting the size of the budget the principal will set in the following period. The equilibrium may have separation or pooling. In a pooling equilibrium, the agent may mis-represent his preferences, aiming to get a large budget in the future period.

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previous chapter Tax Policy Under the “Generational Election System”

Available only for authorised users

For a selective review of research on the existence and the effects of prosocial behavior among individuals working in public organizations, see Polidori and Teobaldelli (2013).

It follows from the discussion in Sect. 4.2.1 that m _A = 0 should hold in equilibrium.

We used the data until 2000 because the definition of some categories changed after that fiscal year. We excluded two categories because: one was subject to changes of definition during the period from 1985 to 1999, and the other is miscellaneous.

We thank Nobuo Akai and Takero Doi for this example.

The budgets for FY2009 were large, to address the effects of the Lehman shock.

The new administration abolished fiscal caps in drawing up the FY2010 budget. It motivated each spending ministry to require increased budgets. Accordingly, fiscal caps were restored next year.

Spending for post-disaster recovery projects is excluded.

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Title: Budgets Under Delegation
Authors: Kimiko Terai
Amihai Glazer
Publisher: Springer Japan
Book: The Political Economy of Fiscal Consolidation in Japan
Print ISBN: 978-4-431-55126-3

Electronic ISBN: 978-4-431-55127-0

Copyright Year: 2015
DOI: https://doi.org/10.1007/978-4-431-55127-0_7