Restrictions to the range of policies available to governments are often recommended as a solution to coordination failures or time inconsistency problems. However, policy restrictions can have important drawbacks that have been generally ignored so far. When the hands of governments are tied, citizens have lower incentives to be informed on political matters and to participate in collective decision-making processes, since private returns from political informa- tion are lower. However, a …scal policy restriction tends to reduce redistribution by inducing lower political information acquisition by part of poorer voters. This mechanism provides a microfoundation for the idea that the so-called "democratic de…cit" induces low participation in political life. Perversely, the equilibrium outcome can be very di¤erent from what the re- striction intended to achieve. With this ideas in mind we test the key prediction of our model in a controlled laboratory experiment and …nd evidence in support of our …ndings: restricting the policy space in the presence of asymmetric information can have perverse effects.

The Perverse Consequences of Policy Restrictions in the Presence of Asymmetric Information

LARCINESE, VALENTINO
2012

Abstract

Restrictions to the range of policies available to governments are often recommended as a solution to coordination failures or time inconsistency problems. However, policy restrictions can have important drawbacks that have been generally ignored so far. When the hands of governments are tied, citizens have lower incentives to be informed on political matters and to participate in collective decision-making processes, since private returns from political informa- tion are lower. However, a …scal policy restriction tends to reduce redistribution by inducing lower political information acquisition by part of poorer voters. This mechanism provides a microfoundation for the idea that the so-called "democratic de…cit" induces low participation in political life. Perversely, the equilibrium outcome can be very di¤erent from what the re- striction intended to achieve. With this ideas in mind we test the key prediction of our model in a controlled laboratory experiment and …nd evidence in support of our …ndings: restricting the policy space in the presence of asymmetric information can have perverse effects.
2012
American Political Science Association, annual meeting 2012, New Orleans, 30 Agosto - 2 Settembre 2012
Hortala Vallve, R; Larcinese, Valentino
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3985210
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