Mandatory Versus Discretionary Spending: the Status Quo Effect
Renee Bowen, Ying Chen, Hulya Eraslan*
Last modified: 2013-04-15
Abstract
Do mandatory spending programs such as Medicare improve eciency? We analyze a model with two parties allocating a fixed budget to a public good and private transfers each period over an innite horizon. We compare two institutions that differ in whether public good spending is discretionary or mandatory. We model mandatory spending as an endogenous status quo since it is enacted by law and remains in effect until changed. Mandatory programs result in higher public good spending; furthermore, they ex ante
Pareto dominate discretionary programs when parties are patient, persistence of power is low, and polarization is low.