Political Institutions And Welfare

• In Event: Formal Political Economy

Abstract

Decisions about the composition of public goods provided and paid for with tax proceeds are typically made by government officials, who might prefer funding of inefficient local public goods that disproportionally benefit special interests. We investigate the effect of two political institutions, fixed-scheduled and recall-enabled replacement of government officials, on enhancing welfare through efficiency of public good provision. In a fixed-scheduled institution the official serves unchallenged for a known period of time whereas in a recall-enabled replacement scenario the official can be challenged while in office. We show that, if the perfect equilibrium is the solution concept then efficiency is similar across the two institutions. However, higher efficiency of public good provision in recall-enabled replacement can be an equilibrium outcome if trigger strategies are utilized. We conduct an experiment to study the empirical performance of the two institutions. Data from our experiment reveal that a recall-enabled institution discourages provision of the less efficient local public good. Paradoxically, we observe higher tax evasion by citizens which nullifies the positive effect on welfare of throwing the bums out.

Authors

• Sarah Mansour, Faculty of Economics and Political Science

• Mazen Hassan, Cairo University