Bargaining Over the Budget

This article presents a theory of government expenditure and identifies how an inefficient government budget is shaped by its initial size and allocation. Assuming that the parties in the legislative body agree with the optimal size of a government budget but have conflict of interests over its allocation, we show that, if the initial budget size is sufficiently large and the initial allocation is sufficiently unequal, in equilibrium the budget size is greater than what it would be had the initial budget size been sufficiently small.