What type of spending rules can better overcome legislative inefficiencies? @mazzimon77, @gp_mihalache and I study two types of spending rules, one that makes it mandatory the provision of public goods and another that makes it mandatory the provision of private goods. (1/n)

We do this in a dynamic legislative bargaining setting with an endogenous status quo that in our modeling strategies represent the two spending rules we study. (2/n)

We show that, in general, spending providing public goods makes society better off (in line with Bowen, Chen and Eraslan, AER, 2012). However, (i) when political turnover is high, providing private goods can lead to larger welfare increases, and (3/n)

(ii) providing entitlements provide smoother sequences of consumption - which is relevant when agents are risk averse.(4/n)

A couple of things were left aside in our setting and worth attention: (i) there was no heterogeneity in income - and our intuition tell us that when there are rich and poor, providing private transfers may be better (5/n)

(ii)there is no fluctuation in government's resources-which are a key discussion in countries that have high level of spending rules and have a hard time to hold spending back (like in the case of Brazil, that has 96% of the budget earmarked or mandatory to some extent),and (6/n)

(iii) in our environment the government's budget is balanced, we don't allow for debt - and from Bouton, Lizzeri and Persido (forthcoming, 2020), we know that debt and spending rules can be strategic substitutes. (7/n)

The reason for this difference in terms of the spending rules is that the private good suffers more when there is political fluctuation (after all,we all have utility from the public good). Therefore,although the benefit of protecting this good against expropriations is high(8/n)

the cost in terms of public good provision becoming more volatile is also high. (9/n).

The complete paper: https://www.nber.org/papers/w27595  (n/n)