Bird, R.M., Intergovernmental Finance in Colombia: Final Report of the Mission on Intergovernmental Finance, (Harvard University Law School, 1984), pp. 87–115.
Jankowski, J.E., Jr., “The Practice and Prevalence of Earmarking,” (National Tax Association, Tax Institute of America Proceedings, 1984).
Johansen, L., “Some Notes on the Lindahl Theory of Determination of Public Expenditures,” International Economic Review (September 1963).
Premchand, A., Government Budgeting and Expenditure Controls: Theory and Practice (Washington: International Monetary Fund, 1983), pp. 158–60.
Slack, N.E., and R.M. Bird, “Local Response to Intergovernmental Fiscal Transfers: The Case of Colombia,” Public Finance (No. 3, 1983).
Wilkie, J.W., “The Budgetary Dilemma in the Economic Development of Mexico, Bolivia, and Costa Rica” in Fiscal. Policy for Industrialization and Development in Latin America, ed. by D.T. Geithman (University of Florida Press, 1974).
I am indebted to Thanos Catsambas, Peter Heller, A. Premchand, S. Ramachandran, and Jaime Vazquez for helpful comments and discussion.
Note that the three voters’ optima are such that, relative to A, C prefers more S, while B prefers less S. This makes A the median voter on the amount of S to be supplied. Likewise, A is also the median voter on the equilibrium quantity of G.
For example, the Ministry of Defense produces an amalgalm of soldiers, guns, ships, and aircraft from which the final output of interest to the consumer—defense services—must be inferred.
Jankowski (1984) has suggested that the Superfund is essentially a Pigovian tax. This is not correct because the supporting taxes are not intended to influence the current flow of pollution, but rather to clean up the stock of past environmental damage perpetrated by unknown or insolvent parties. Moreover, a single instrument such as the Pigovian tax on the level of effluence would be socially inoptimal for dealing with two issues (the cleanup of existing toxic waste and the appropriate level of future effluence).
Legislators are not the only class that may resort to earmarking in such a circumstance. Wilkie (1974) and Premchand (1983) suggest that, in a number of Latin American countries, earmarking was motivated by the executive branch of government, which wanted to bypass the problem posed by legislative logrolling and unstable coalitions.
Whether or not the underlying distribution of income is “just” is, of course, a separate issue.
This case is not far removed from the suggestion of the U.S. auto industry some years ago to dedicate tariff revenues to “improving productivity” in the auto industry.
A matching grant provides x pesos for each peso raised locally. An open-ended grant does not set a ceiling on the size of the transfer.