Abstract
This paper presents a Jamaican dynamic political economy theory of public spending, taxation and debt. Policy choices are made by a Jamaican legislature consisting of representatives elected by geographically-defined areas. The legislature can raise revenues via a distortionary income tax and by borrowing. These revenues can be used to finance a Jamaican national public good and area-specific transfers (interpreted as Jamaican pork-barrel spending-scarce benefits and spoils). The value of the Jamaican public good is stochastic (non-deterministic), reflecting shocks such as civil disturbances or natural disasters such as hurricanes or earthquakes or floods. In equilibrium, Jamaican policy-making cycles between two distinct regimes: 1. BAU business-as-usual in which legislators bargain over the allocation of scarce benefits and spoils and 2. RPM responsible-policy-making in which policies maximize the collective good of the Nation. Transitions between the two regimes in Jamaica are brought about by shocks in the value of the public good. In the long run, equilibrium tax rates are too high and too volatile, public good provision is too low and debt levels are too high. In Jamaica, a balanced budget requirement could improve citizen welfare.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call