This paper develops a two-country model to study two questions. How do the degrees of centralization of redistribution and of factor mobility affect the productive efficiency of the economies? What degrees of centralization of redistribution and of factor mobility are likely to be chosen by majority rule? The model shows that a system of centralized redistribution can lead to less efficient outcomes if labor or capital are not mobile; and an inefficient outcome, with incomplete or no factor mobility, receives a majority of votes in both countries, whenever the structure of labor markets is very different in the two countries. (JEL D72, E62, H50, H77)

The critical economic policy issue for many OECD countries, developing countries, and transition economies currently is fiscal consolidation, and the maintenance of long-run fiscal balance. Two related components underlie this general goal. First, several countries face the issue of deficit reduction, particularly those countries with high debt/GDP ratios. Second, it is becoming increasingly apparent that major reforms of the welfare system and, specifically, of social-security systems are critical ingredients of a long-lasting fiscal consolidation (see Alesina and Perotti, 1995a). In the case of monetary policy, a constructive discussion has generated a widespread consensus about the benefits of different monetary institutions. Relatively few economists dispute the benefits of a certain amount of central-bank independence, even though different commentators and policymakers may disagree on the optimal degree of independence. Also a contracting approach has highlighted the benefit of inflation-targeting and of certain institutional relationships ( contracts) between the executive and the central bank. A similar theoretical and empirical discussion on the role of budget procedures and budget institutions is just beginning. In this paper we ask the following two questions: (i) Do budget procedures matter for the determination of the budget balance and its composition? (ii) Are there certain institutional reforms that one should feel comfortable in recommending? Based on the relatively scarce empirical evidence available, we tentatively answer yes to the first question: budget procedures matter. On the second question we suggest that the two critical areas of reform are: first, more transparency; second, a strengthening of the roles of the executive branch vis 'a vis the legislature, and of the treasury minister vis a vis the rest of the executive branch, in order to achieve a centralized and top-bottom approach to the budget process.

This paper studies the effect of additional government revenues on political corruption and on the quality of politicians, both with theory and data. The theory is based on a political agency model with career concerns and endogenous entry of candidates. The data refer to Brazil, where federal transfers to municipal governments change exogenously at given population thresholds, allowing us to implement a regression discontinuity design. The empirical evidence shows that larger transfers increase observed corruption and reduce the average education of candidates for mayor. These and other more specific empirical results are in line with the predictions of the theory. (JEL D72, D73, H77, O17, O18)