Regulating Pre-Election Spending: A Dynamic Analysis
Abstract
We analyze optimal fiscal rules to mitigate electoral distortions in government spending. An incumbent seeking reelection distorts spending in two ways: (1) by concentrating expenditures closer to the election (timing misalignment), and (2) by targeting narrow benefits while disregarding diffuse costs (scope misalignment). We formulate this as a dynamic mechanism problem without transfers and demonstrate that when distortions stem solely from timing misalignment, the optimal policy is an abrupt spending ban allowing unrestricted spending until a fixed pre-election date, after which spending is entirely prohibited. This matches commonly observed electoral “blackout periods.” However, when scope misalignment is also present, the optimal policy becomes a continuous restriction that tightens gradually as the election nears. Thus, while real-world institutions exclusively implement the abrupt ban due to its enforceability, this comes at a welfare cost.
About the speaker
Doruk Cetemen is an Associate Professor of Economics at Luiss Guido Carli and a Research Affiliate at EIEF. His research lies in economic theory, with an emphasis on dynamic contracting and information economics. He is the recipient of a European Research Council (ERC) Starting Grant (grant no. 101165373). His work has appeared in the Journal of Political Economy, Journal of Finance, and Theoretical Economics (where it received the Best Paper Prize). He serves as an Associate Editor at the European Economic Review.
Language
English
This is a free seminar. Registration is mandatory.
Supported by the Fond National de la Recherche
Luxembourg (19441346)