Legislative Bargaining and Incremental Budgeting

26 Pages Posted: 17 Aug 2001

See all articles by Dhammika Dharmapala

Dhammika Dharmapala

UC Berkeley School of Law; CESifo (Center for Economic Studies and Ifo Institute); European Corporate Governance Institute (ECGI)

Date Written: August 2001

Abstract

The notion of 'incrementalism', formulated by Aaron Wildavsky in the 1960's, has been extremely influential in the public budgeting literature. In essence, it entails the claim that legislators engaged in budgetary policymaking accept past allocations, and decide only on the allocation of increments to revenue. Wildavsky explained incrementalism with reference to the cognitive limitations of lawmakers and their desire to reduce conflict. This paper uses a legislative bargaining framework to undertake a formal analysis of incremental budgeting. An exogenously chosen agenda setter proposes budgets and seeks to build coalitions to secure passage, over multiple periods. The central result is that the agenda setter can lower her cost of building a winning coalition, and thereby raise her payoff, by following an incrementalist strategy, which involves maintaining the same coalition every period. First, it is shown within a simple 2-period model that there exist subgame perfect 'incremental budgeting' equilibria of this nature. If the agenda setter is assumed to be able to commit to the 'grandfathering' of past allocations, incremental budgeting is the unique subgame perfect equilibrium (up to the choice of the coalition members). The model is then extended to an infinitely repeated setting, and it is shown that the agenda setter's incentives for incremental budgeting are reinforced in this context. Some testable implications (relating incrementalism to various characteristics of the legislature) are also derived. Finally, the implications for incrementalism of heterogeneity among legislators is analyzed.

Keywords: Legislative bargaining, incremental budgeting, budgetary institutions

JEL Classification: D72, H61

Suggested Citation

Dharmapala, Dhammika, Legislative Bargaining and Incremental Budgeting (August 2001). Available at SSRN: https://ssrn.com/abstract=279018 or http://dx.doi.org/10.2139/ssrn.279018

Dhammika Dharmapala (Contact Author)

UC Berkeley School of Law ( email )

302 JSP
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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Germany

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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Belgium

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