If there is going to be another fiscal stimulus, there will likely be a division between those who want tax rebates to households and those who want to help states pay for extra infrastructure spending. I have a compromise, based on the grand U.S. tradition of federalism: Let each state decide.So, first we'll have all the rent-seeking at the Federal level, which will encompass those trying to avoid being taxed for it and those who want the receipts as riders to the bill. Followed by a new round of rent-seeking at each of the 50 states as they doll out the goodies.
Congress could pass a fiscal stimulus of a certain amount per person but offer two ways to have it paid out. Each state governor could be allowed to determine whether to take the money as state aid or have it paid directly to his or her state's citizens. Those governors who think they have valuable infrastructure projects ready to go would take the money. Those who do not would let their citizens take the extra cash. When designing a fiscal stimulus, there is no compelling reason for one size fits all. Let each governor make a choice and answer to his or her state voters.
Friday, October 31, 2008
Why Fiscal Stimulus Stimulates the Wrong Things
If you want a perfect demonstration of how an understanding of public choice and rent-seeking can change what kind of policy recommendations you should make, then have a look at this post from Greg Mankiw: