Political agency and public finance
This chapter applies the political agency model to public finance issues. Section 4.2 lays out the basic agency problem and the main assumptions. Section 4.3 identifies the three basic kinds of agency model. The first has purely hidden type, the second only hidden action, and the third both features. Section 4.4 draws out some implications of the model for the data. Section 4.5 uses the model to discuss a variety of means for restraining government: explicit restraints on taxation, tax competition, increased transparency, and yardstick competition. The model is then extended to include public debt. If public debt is observable, then the model and its insights remain unchanged. However, difficulties in observing public debt levels do create a rather different spin on the model. This is discussed in Section 4.6. Section 4.7 applies the ideas to whether an NGO is a more efficient provider of public spending. Section 4.8 looks at what happens if it is fiscal competence that is not observed and Section 4.9 provides conclusions.
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