The Safeguards for Public Money
- Safeguards
4.1 The Problem with Political Control
In representative democratic countries, the State is faced with an increasing challenge to its legitimacy due to the complex nature of contemporary governance. Much of the problem-solving needs of public decision-making today can only be addressed by domain expertise. Division and specialisation have, therefore, become the default response to emerging complexity. This creates the challenge of a potential trade-off between competence and consent. Specialised decision-making by the administrative state may be viewed as a manifestation of ‘democratic deficit’; if those same decisions are taken by elected representatives, it may result in a ‘competence deficit’.
The scheme of Constitutional separation and delegated legislation are nominal responses to this challenge. This is both a functional and normative approach towards the safeguards that are necessary to adequately address the competence-consent calculus. However, separation and delegated legislation need to be contextualised with several other factors for a sufficient structure of safeguards to emerge. For reference, the principal safeguard within the money mechanism is central bank independence, as a counter-point to ‘fiscal dominance’. This is, at best, a partial response to the problem of balancing political control and domain expertise.
4.1.1 Rational Behaviour and Risk
Maintaining a sceptical outlook about the motives, practices and outcomes of governance is crucial for mitigating against its risks. Apart from functional reasons, protecting individual liberty against the tyranny of the State was a prerogative for John Locke’s scheme of separation [1]. Montesquieu’s arguments in favour of separation [2] were echoed by the Founding Fathers in the United States. James Madison emphasised upon the possibility of capture by special interest groups, and how institutional fracturing was a necessary safeguard against this threat.
Despite the above, the sanguine presumption that a sovereign essentially acted in public interest has proven difficult to dispel. Political theories that explain how political incumbents act in rational self-interest have enabled a better appraisal of governance structures. The shift from public interest to a more realist interpretation of governance and the State is necessary to contain the potentially negative consequences of public decision-making in general, and political control in particular.
There are at least four aspects of political decision-making which make rigorous safeguards necessary. First, self-interest (rational or otherwise) is the primary consideration for any decision-maker, and politicians are no exception. In representative electoral systems, that self-interest is getting elected (and re-elected) to public office. This may create a misalignment between the interests of voters and their representatives.
Second, the incentives of political decisions are different from those of private ones. When a voter elects a representative, he is appointing an agent who makes decisions not only on behalf of that particular voter, but others as well. While it may be assumed that an individual will not spend money on a private bargain if she does not believe it to be in her interest, she may be coerced into accepting public spending decisions made by politicians which do not benefit her personally [3]. Third, where administrative decisions are subject to political control, voters may be coerced into the ‘tyranny of the organised minority’. Regulatory capture may direct public decisions in favour of an organised lobby or donor class [4].
Finally, electoral voting itself is subject to various limitations which make it an imperfect manifestation of consent. Condorcet described the inherent self-contradiction of majority rule as a voting paradox, while Kenneth Arrow’s Impossibility Theorem shows how ordinal ranking of individual preferences in elections cannot produce a fair collective outcome. Voting also suffers from various challenges in incentive alignment for voters, including a pronounced free-rider problem. As the size of the electorate increases, the relative weightage of an individual voter’s choice decreases [5]. The cost of gathering information about political choices exceeds the potential gains from doing so. Voters are disincentivised from voting with due care, leading to information asymmetry and a problem of adverse selection. Also, there may be a ‘menu problem’ – the specific agenda of a voter or preferred candidates may not appear on the manifesto or ballot, respectively.
4.1.2 Fiat Money and Risk
As mentioned previously in this series, fiat money – while operating through the monetary-fiscal mechanism and public finance – carries systemic risks due to its potentially unconstrained nature. Some of these risks are: liquidity and interest rate; inflation and financial stability; direct and indirect monetary financing of public debt; cost of debt servicing; repayment-stoppage-rollover risks; off-budget borrowings and spending; credit policy and balance sheet risks; financial repression; misallocated spending; and extortionate or regressive taxes. The safeguards against these risks are entirely legal-institutional in nature. At present, these safeguards include: central bank independence; rule-based monetary policy; prudential lending and balance sheet requirements; public debt limits; prohibitions against monetary financing and direct monetisation of public debt; legislative requirements for spending and taxation; audit and judicial review.
The experience with fiat money over the past century (Germany; Argentina; United States; Japan; India; Zimbabwe; Turkey) has demonstrated the risks of political control over the monetary-fiscal mechanism. Due to the potentially unconstrained flow of fiat money in the short-to-medium term, the moral hazard and risk arising from political control over public finance in contemporary economies is significantly greater as well. Asset bubbles, high inflation, fiscal crises and economic stagnation can be partly attributed to excessive reliance on printed money and fiscal bailouts by central banks.
It is evident from the above that political control over public money presents outsized risks which require rigorous legal-institutional safeguards. The most significant aspects of these safeguards are mentioned in the following sections.
4.2 Classification of decision-making
Public decision-making (including relating to public money) is both heterogeneous and domain-specific. The mechanism, procedure and criteria for decision-making would, therefore, differ accordingly. Classification of public money decision-making is necessary for identifying and implementing necessary safeguards. As public money decisions require accounting for a diverse set of functional and normative considerations, there are various possible approaches towards their classification. Some of these are: short-medium-long term (temporal); input-output (value-based) [6]; and targets-instruments (instrumental). The appropriate choice of singular or combined approach would depend on various institutional and discursive factors, some of which are discussed below.
4.2.1 Instruments and Institutions
The monetary-fiscal-credit policy classification is the conventional locus of macroeconomic decision-making. While this instrumental approach towards the problem of public money is useful in a technical sense, there are other aspects of public money that need to be addressed as well. The following issues pertaining to public money have received comparatively less attention.
First, the difference between policy decisions and their implementation is often overlooked. A decision-making mechanism which does not discriminate between the two is both less effective and undesirable. The institutional design must allow for a hybrid framework where the authority and process of decision-making match the nature of the decision. One approach would be to classify decisions as based on outcomes (output) or mechanism (input) [7]. The fundamental difference between these two categories lies in whether the ‘correctness’ of a decision is measured by a pre-defined result or by the integrity of a discretionary process. Output-based decisions are evaluated on a definite-optimal value or outcome. Liquidity management through open market operations is an example of such decisions. Both the targets and instruments of liquidity management are objective and the effectiveness of these decisions depends on the outcome.
Input-based decisions are those where, subject to the overall legislative framework, a wide discretion is vested with the institutions. As these decisions are a matter of subjective determination, the procedural integrity of the decision-making mechanism is the appropriate legitimation criterion. One category of input-based decisions are those involving operational discretion in achieving objective outcomes, such as overarching statutory targets (e.g., public debt ceiling under the FRBM Act), where the institution(s) are responsible for choosing the path towards the goal. Institutions are expected to make informed choices from among available instruments and, to potentially identify intermediate goals towards achieving the ultimate goal. A second category of input-based decisions are those involving strategic discretion. For decisions on spending by specific departments within the government or the budgets of other branches of the State, the representative composition and basis of decision-making is the legitimation, and not specific spending outcomes.
Second, the distinction between the monetary-fiscal mechanism and public finance is inadequately articulated at present. Within economics, fiscal decisions are studied under three sub-disciplines – macroeconomics, public finance and Modern Monetary Theory (MMT). In macroeconomic theories, fiscal policy refers to decisions made by the government on spending and taxation; and, monetary policy is the domain of the central bank that is concerned with liquidity management through use of instruments such as interest rates [8]. The focus here is on the reasons, instruments and implications of various fiscal and monetary policies (expansionary or contractionary), as well as the interaction between fiscal and monetary policies.
The literature on public finance offers a more in-depth understanding of fiscal functions. Musgrave [9], for instance, unpackages the considerations surrounding the allocation, distribution and stabilisation functions of fiscal policy in detail. A large part of the work engages with equity and efficiency in public expenditure and taxation, as well as its economic effects. The interchangeable use of the terms ‘fiscal’ and ‘public finance’ shows a lack of conceptual separation; the legal-institutional separation between the two domains is clearly not a focus of public finance. Identifying the dimensions and implications of political (executive) control over fiscal decisions, and developing the legal-institutional classification of fiscal decisions into the distinct elements of liquidity management and public finance, are not within the scope of either macroeconomic or public finance literature.
MMT is a chartalist macroeconomic narrative in which the role of the State is emphasised in the origin story of money, as well as in being its source of value [10]. MMT scholarship confirms the interrelationship between monetary and fiscal operations and offers crucial insights into its implications for public finance. In doing so, it engages with the institutional arrangements underlying the fiat money mechanism [11]. Based on accounting practices, the effects of monetary-fiscal operations on money supply and information about the coordination between the treasury and the central bank, it provides a description of the flow of finance among the central bank, fiscal institution (the treasury) and the domestic private sector (financial and non-financial). Three inferences from MMT are particularly relevant for legal-institutional safeguards: a) the operations of the treasury and central bank overlap with each other; b) the legal-institutional arrangements do not impose effective financial constraints on the treasury; and, c) the risks associated with political control over the central bank are not addressed if the treasury is under the control of the political executive.
Third, monetary policy cannot be a proxy for economic policy. There have been frequent calls for central banks to expand their domain beyond price/financial stability and employment maximisation. While monetary policy has an important role to play in stabilizing price levels and reducing economic instability caused by the business cycle, it is too blunt an instrument to effect real economic change, such as boosting real wages. This would require productivity growth, which is outside the control of central banks; attempts made to influence real wages have caused more problems than they have solved [12]. Discretionary monetary policy is also not a suitable choice for stabilising asset prices. Central bank officials have no specialised ability to predict asset price movements, and, therefore, have no reliable model for how to use monetary policy to prevent asset price bubbles [13]. Monetary-fiscal policy needs to be, therefore, coordinated with economic policy to achieve the broader goals of economic stability and growth. The equivalent problem of “fiscal dominance” has received such widespread attention that it does not require elaboration.
Fourth, is a reverse scenario of the above – the blanket category of “economic policy” may impose political executive control over disparate domains which require the protection of separation and accountability. The technical and specialised nature of monetary-fiscal-credit policy decisions, and the risks which they entail, make expertise and neutrality essential requirements. The “policy” blanket also consolidates economic decision-making within the political executive at the expense of the power of the purse of the legislative branch. Certain public spending laws, for instance, require clear expenditure and funding mandates – this may be due to their quasi-constitutional nature (equitable welfare; counter-cyclical relief; sustainability), their crisis-alleviating function or the significant financial implications involved. This would only be possible if, like taxes, these spending programs were located within laws and institutions with defined scope, decision-making, criteria and accountability.
Control over credit policy decisions on emergency liquidity (discount window lending), banking regulation (defining macroprudential requirements) or loan guarantees under the guise of economic policy enables political expedience (e.g., crony-lending, guarantees for risky borrowings). Reconstruction of stressed assets is another class of financial decisions which is vulnerable to political, rather than prudential, considerations [14]. Also, if borrowing decisions are entirely controlled by the political leadership (like in India), adhering to deficit and debt limits becomes difficult, and an increase in both public debt and higher cost of debt servicing can be expected.
Fifth, the institutional framework (central bank, treasury, commercial banks, government/legislature) of public money is as important as the laws. Legal safeguards cannot operate in an institutional vacuum. Decision-making and accountability safeguards are not only meant to curb the fallout of incentive misalignment, but are also aimed at instilling and transforming value preferences that reduce risks. For the safeguards of separation, delegation, accountability and decentralisation (discussed below) to be adequate, the institutional distinction between: the legislative and executive branches; the political executive and administrative state; ex ante decision-making, oversight and accountability mechanisms; and Union, state and local levels of governance should be maintained.
Sixth, legal-institutional safeguards are especially vulnerable during crisis episodes. Consolidation of political control is most prevalent in legal systems which lack adequate safeguards for distinguishing between normal and crisis situations and for circumscribing crisis decisions. These safeguards would include: distinguishing between cyclical situations and genuine crises; classification and definition of crises; clarity on which instruments may be used; requirements for parliamentary approval or ex post accountability; and provisions for identifying whether crises have ended and reverting to status quo. The temporal nature of crises means that safeguards are likely to be over-ridden in the short term. The absence of ex post guardrails creates the potential for interventions that are arbitrary [15] or in bad faith, and may entrench political excess permanently.
4.2.2 Separation and Accountability
The Constitutional arrangements of separation and delegated legislation are ex ante safeguards against excessive political concentration, while the scheme of institutional and discursive accountability is meant to be the ex post safeguard. Finally, decentralisation should prevent consolidation of political control at any one level of government or the State. Four distinctions are crucial to the scheme of separation, delegation, accountability and decentralisation.
First, ambiguity in the legislative-executive distinction enables consolidation of political control due to legislative-executive fusion. This is one of the primary conditions responsible for the emergence and sustenance of electoral autocracies, and is especially pronounced in countries that have Westminster-based systems (like India). Inadequate separation may be due to: composition (ministers are drawn from the legislators); competence (the legislature may lack the expertise or capacity required to make laws); procedure (the legislative procedure is hijacked by and subservient to the executive branch) [16]; and institutions (coextensive executive and legislative powers) [17].
Second, ambiguity in the distinction between the political executive and the administrative state enables executive-administrative fusion. Whether or not the executive branch is unitary is an important consideration for the outcomes of a political system. If the relationship between the political executive and the administrative state is characterised by only one classification of decisions (where the political executive decides policy and maintains oversight and control), it is at the expense of competence and neutrality. There is (at least) another possible classification: where an institution is either autonomous or under the oversight and control of a diagonal institution, with overall legislative and judicial accountability [18]. Fourth branch institutions in general fall within this classification. Central bank independence is an example of this, and in some countries this applies to the treasury as well.
Third, related to the above, is ex post accountability. Enacting and maintaining distinct: ex ante decision-making; enabling and amendatory oversight; and ex post accountability; is crucial for public money. Taking the example of fiscal responsibility laws – there is a difference between the reporting and enabling mechanism for debt management and the consequences for breach. Furthermore, the afore-mentioned ambiguity in the legislative-executive and political executive-administrative divide creates a challenge for accountability to the higher judiciary. The presumptions of constitutionality and administrative competence act as barriers against judicial challenge of laws and administrative decisions, respectively [19]. Ambiguity about the autonomy and capacity of the CAG may also undermine ex post accountability for public finance decisions.
Fourth, decentralisation (like delegation) is an under-emphasised aspect of the scheme of separation. Political, administrative and fiscal decentralisation are inter-dependent, and there are both functional and normative justifications for decentralisation. In a federal structure, localising law-making, policy, administration, spending and revenue decisions is desirable for both equity and efficiency, as the local context is important for optimising public decisions. A potential trade-off between scale and context is sometimes cited as an obstacle, and should be considered while optimising between centralising and localising governance [20].
4.3 Agency risks
In representative democratic systems, political representation in decision-making is, at best, a nominal safeguard against democratic deficit. To address democratic deficit in a meaningful sense, certain necessary conditions need to exist: separation and accountability mechanisms that work; the presence of meaningful legislative bargaining; and competitive elections with credible political alternatives to the incumbents. If existing safeguards fail in preventing incompetent, bad faith and rivalrous political decisions that undermine these requirements – democratic legitimacy is, at best, nominal.
4.3.1 The Competence Requirement
While the moral hazards of political decision-making are a primary concern (discussed below), the lack of expertise in specialised areas (of the political incumbents) is a problem in itself. A few historical examples of the negative experience with political control over public money are mentioned in 4.1.2 above. These afore-mentioned examples are indicative of the various aspects of spending, borrowing and taxation decisions that are vulnerable to incompetent decision-making.
The liquidity, interest rate and stability (price, financial) implications of spending decisions may vary depending upon whether they are funded through taxes or debt. There are credible reasons (such as the crowding out of private investment) as to why public spending may inhibit capital formation and growth under certain conditions. Economic outcomes (employment, income, productivity and growth) depend to a large extent on the choice of public spending (capital formation, welfare or consumption). This applies to counter-cyclical and emergency fiscal stimulus/austerity as well. Both the type of spending (or de-funding) incurred, and the choice between spending and taxes, are important considerations in designing counter-cyclical and emergency relief.
While the choice between equity and efficiency (to the extent that there is a trade-off between them) may be a political decision, the distributive implications of whether taxes are direct or indirect are more objective, as taxes on consumption are inherently regressive. Also, a revenue-maximising approach towards taxes may distort their role in internalising costs and addressing market failures (merit/demerit goods; market dominance). Due to these factors, competence is a prerequisite in public finance decision-making, which political incumbents may lack.
4.3.2 General Challenges
The principle challenges of political systems when it comes to public finance – the incumbent’s narrow electoral interests; the external cost of spending and tax decisions; the risk of regulatory and administrative capture; and the limitations of voting, which include the free-rider, adverse selection and menu problems – have been mentioned in 4.1.1 above.
As mentioned above, the shift within political theory from the optimism of ‘public interest’ assumptions about governance to the realism of self-interested political agents was crucial for internalising the risks of political control [21]. The political incumbent in electoral democracies has powerful incentives to manipulate and abuse the public finance mechanism. The short-termism of political decision-making was identified and formalised as a ‘political business cycle’ [22] in the second half of the 20th century, and it reinforced the economic reasoning for legal-institutional safeguards for public finance. However, the scope and significance of the ‘incumbent problem’ within representative electoral democracies – including the short-termism inherent in political control – has not been fully articulated [23]. These aspects and consequences of the incumbent problem are not intrinsic to public finance, or even public decision-making in general. They arise from the interaction of specific legal-institutional design choices, value criteria and the context of decision-making.
Restraining the agency problem of public finance is challenging due to certain evaluative, temporal and causal reasons. Although the optimisation of public money decisions is a primary aspect of diverse economic/political economy explanations, they do not converge on a common prescription for decision-making. The economic articulation of short-termism and political business cycles does not fully address the potential scope, incentives, means and consequences of the agency problems of political control. The distinction between the agency risks of political control and legitimate political self-interest (in a discursive sense), and legitimate exercise of discretionary policy choices (in practice) has not been laid down in the law. In the absence of discursive and constitutional-legal clarity on the desirability, scope and means of competitive political behaviour, it is difficult to identify, question or prevent rivalrous decisions aimed at securing political gains. Even where the bad faith and/or rivalrous nature of spending and revenue decisions is obvious, it may be difficult to establish that these extrinsic considerations were responsible for the decisions.
The subjectivity inherent in political decisions makes it difficult to dispute their value. Challenging the efficiency and optimisation reasoning of borrowing, spending and revenue decisions on objective terms is made difficult due to lack of information, complexity and causal indeterminacy. Public money decisions are also temporally inconsistent – what would be a prudent spending decision at one point in the economic cycle may be considered as profligate at a different point in time. The impact of spending, borrowing and taxation decisions are spread out over several years or even decades. Many public investment projects have long gestation periods, which makes maintaining oversight and accountability expensive and complex. These are significant challenges to evaluating and constraining public money decisions.
4.3.3 Discursive Issues
4.3.3.1 Scope of agency risks
The premise of the theory of Political Business Cycles (PBC) is that political incumbents will manipulate the economy to influence voters and improve their chances of re-election, thereby creating artificial cycles of expansion and contraction. PBC theory predicts fiscal expansion (e.g., increase in spending and tax cuts) by the incumbent to reduce unemployment and/or boost economic activity just before an election, followed by contractionary behaviour afterwards to mitigate against the debt and inflationary effects.
The electoral cycle, however, may not be secular and invariant; it may be influenced by factors such as ideology and information asymmetry. For instance, it has been observed that PBC are likely to be partisan – competing political parties have heterogenous preferences for unemployment and inflation. The nature of the decisions made on public spending, taxation and public debt will, therefore, depend on the economic ideology of the incumbent [24]. It will also depend on the extent of information asymmetry between voters and the government – whether voters have the necessary information about economic conditions, governments’ competence in economic management and their policy objectives. Instead of conventional government spending, the pre-election stimulus may be brazenly corrupt cash transfers to voters, which are essentially bribes for their votes. This has been increasingly occurring in India of late.
From a reading of the above, a quasi-consensus seems to emerge that the incumbent will always focus on the short-term. Subject to lack of safeguards, however, the opportunistic behaviour of the incumbent may not necessarily be restricted to election periods (or gains within the duration of one electoral term). Instead, decisions may be made with a long-term strategic view to disable constitutional checks and balances, undermine competitive politics, and exclude certain vulnerable groups from welfare programs. The distinction between genuine political decisions and those intended to undermine accountability or political opposition is not self-evident. Control over institutional and program budgets; financial arrangements between national and state governments; legislations securing socio-economic rights (education; healthcare; employment guarantee); and taxation; are susceptible to such abuse.
4.3.3.2 Enablement
There is widespread support for the view that PBC and the short-termism of political actors are conditional. The electoral (incumbent’s popularity, electoral competitiveness) and institutional context have a bearing on the propensity towards PBC [25]. Voters’ preferences [26] and their myopia [27] are enabling factors for political short-termism as well. It has also been argued that the near-term preferences of voters may be flexible, depending upon a host of factors. These include the level of trust in the government, complexity and viability of long-term plans, as well as social and demographic factors. In addition to these, politically influential interest groups with short-term interests [28] and the personal attributes of politicians, such as their state of knowledge and cognitive biases [29], are other potential sources of short-termism.
4.3.3.3 Instruments and mechanism
The political leadership has access to a vast array of means for influencing voters. The instruments that are employed by the political incumbent to influence voters include: increases in public capital expenditure (e.g., infrastructure investment such as construction of roads); higher revenue expenditure (e.g., salary hikes, grant of subsidies, transfers); and tax concessions [30]. Inadequate safeguards for central bank independence and fiscal responsibility are also responsible for PBC [31]. The need for these safeguards for the constitutional-legal-institutional domain of public money has not been fully appreciated and actualised.
4.4 Context
The safeguards which are required for a public money system are not context invariant across countries. Certain political, legal, economic and residual factors have outsized causal weightage in the proliferation, enablement and consequences of the agency risks of political control. These contextual factors may be dynamic and reflexive – they may change with time and may have a feedback relationship with other factors, agency risks and their consequences.
4.4.1 Political
As mentioned above, the scheme of separation-delegation-accountability-decentralisation is the primary safeguard against the agency risks of political control. The de jure political classification of a country is an obvious reference point for assessing this fragmentation. While central bank independence is an entrenched feature of public money decision-making in many countries (including India), the same cannot be said about fiscal separation and the other relevant aspects of decision-making safeguards. The Westminster model, where the State and government are often conflated, is a weak starting point for effective separation and decision-making safeguards [32].
Also, in Westminster-based systems, the legislature and executive branches are drawn from the same pool of elected representatives. The de jure separation is, therefore, weak in these countries and they are susceptible to electoral autocratic back-sliding. Another crucial aspect of a Westminster-based system that lends itself to concentration and consolidation of political power is that the cabinet is often in control of the executive branch in its entirety, including the administrative state. The consequence of this is that while delegated legislation is nominally a legislative prerogative, the political executive exercises effective control over it [33].
In federal systems (like India), the imbalance between the Union and states is another factor which undermines effective safeguards for public money. Political decentralisation requires the enablement of administrative decentralisation, which in turn is contingent upon fiscal decentralisation for integrity. If states do not have effective control over borrowings, spending and taxes, they cannot exercise their political mandate for governance. This also undermines their capacity to address the revenue-spending imbalance for local governments [34].
The de facto political environment in a country is as relevant as the above-mentioned nominal factors in shaping the reality of public decision-making. Competitive electoral politics, along with effective legislative bargaining, are the most prominent aspects of democratic political systems. Countries that are marked by diverse plurality are vulnerable to adversarial majoritarianism and, therefore, autocratic takeover. Selective pork-barrel spending and rivalrous behaviour towards federal units that are governed by opposition parties are normal features in such countries. Within the context of public money and economic policy, however, the bigger problem is the potential for capture of decision-making by a special-interest minority, which then dictates spending and tax decisions to its advantage. One of the most obvious risks of this in capital-deficient countries is that productive spending will be selectively channeled towards infrastructure and other projects which allow for maximizing benefits to cronies, donors and political representatives themselves. Regressive tax changes which favour the donor class of high income earners, the wealthy and corporate entities are additional outcomes of this capture.
4.4.2 Legal
The extent and quality of political control over public money may vary, depending on the texture of constitutional-legal-institutional fragmentation. Central bank autonomy which is encoded in legislation is an obvious necessity [35]. While constitutional protection for this autonomy is desirable [36], limiting the executive branch’s ability to influence policy and implementation decisions (interest rates and operations); regulatory functions (lending norms and banking oversight); and control over personnel and institutional capacity; are equally important.
Legal-institutional separation between the treasury and the political executive is another aspect of safeguards which has remained inadequate in most countries. Effective safeguards for spending and borrowings require autonomous budget and debt management institutions, respectively [37]. Such an arrangement would only be feasible if there is a distinction between the political executive and the administrative state. At present in India, this distinction is the exception (RBI, Election Commission, CAG) rather than the norm. Where fourth branch institutions do possess de jure autonomy, this has been steadily undermined in terms of both episodic instances and structural change [38].
It has been mentioned above that Westminster-based systems suffer from a fundamental limitation of composition when it comes to legislative-executive separation. This also extends to the procedural aspects of legislation – including drafting, debate and voting rules. The Finance Bill is the most significant means of public spending in India. The preparation and discussion on this is almost exclusively controlled by the government, including the guillotine provision for automatic passing of spending proposals without scrutiny due to time constraint [39]. The money bill mechanism itself may be abused strategically to erode the bicameral safeguard which is meant to prevent legislative capture by a political party/faction with a simple majority in the lower house of Parliament. The frequent promulgation of Ordinances to erode Parliament’s authority over law-making is another strategic means which has been increasingly used by the government in recent years.
Fiscal federalism is contingent on whether the division of spending and taxation powers between the Union and states is balanced. The extensive use of Centrally Sponsored Schemes (CSS) as a public spending mechanism has been at the expense of the spending prerogative of individual states, who now depend on the contingent funding provided under these schemes [40]. In India, the introduction of The Goods and Services Tax (GST) altered the fiscal division between the Union and states to the detriment of the latter. The devolution and transfer mechanism under the Finance Commission suffers from limitations in scope, composition issues and lack of permanence. Due to these (and other) factors, the number of Union-state disputes on taxation issues have increased significantly [41].
Another crucial aspect of legal safeguards pertains to whether decision-making in crisis situations is clearly identified and circumscribed. As crisis episodes have frequently resulted in increased consolidation in favour of the political executive, they require specific safeguards to reduce this possibility. These safeguards would include: classifying and defining crises; specifying the instruments that may be used for crisis management; establishing ex post accountability; identifying when a crisis has ended; and the road map back to normalcy. In India, the experience with the Great Recession and COVID-19 showed that the safeguards at present are inadequate, and any restraint that was demonstrated can be attributed to the RBI’s alacrity and rare (discretionary) political caution.
4.4.3 Economic
The economic implications of rivalrous political decision-making depend on the extent and quality of socio-economic development in a country. Public spending and revenue decisions are extremely significant for economic and welfare outcomes. Long-term capital formation and welfare programmes for education, healthcare and social security depend on stable, non-discriminatory institutions and spending budgets. If endowments such as education, health, food, energy, housing, income and wealth are unequally distributed – the absence or poor implementation of these programmes can further exacerbate inequalities. The need for investment in public and merit goods [42] is relatively higher in countries of the Global South (like India), where welfare and quality of life remain serious concerns. The intensity of perverse consequences of rivalrous or bad faith public finance decisions is, therefore, higher in countries like India.
It has been mentioned above that public spending on infrastructure (roads; airports; ports and metro rail), energy and mining based on quid pro quo arrangements with rent-seeking cronies, donors and politicians is widespread in the Global South, including India [43]. These infrastructure projects are preferred over other productive spending (healthcare; education and research) for several perverse reasons [44]. First, they involve large sums of money which is legally guaranteed in most cases; second, the decisions to award these projects are susceptible to manipulation (bid-rigging and tailor-made criteria); third, cost inflation and poor oversight over actual costs are common; fourth, these projects provide a pretext for land notification/acquisition/purchase and procurement scams. An autonomous public investment institution which is not under the exclusive control of the political executive is a vital safeguard for addressing these risks.
Due to widespread inequality and material deprivation in India, welfare spending (including transfers) is a necessary aspect of economic policy. This incentivises the exploitation of public spending for ‘pork-barrel’ largesse in order to buy votes during elections [45]. The political incumbent may make direct transfers to voters immediately before elections, or may promise to make such transfers if elected. Some countries have enacted a prohibition on such pre-election spending as a fiscal safeguard [46]. This is the most common type of political business cycle that one observes in India. The issue of pre-election largesse was taken up before the Supreme Court in the Freebies Case [47], which is currently in limbo.
4.4.4 Residual
Political decision-making is predicated on the assumption that democratic accountability to the political opposition and voters, and discursive/participatory accountability to stakeholders like civil society organisations and academics, act as safeguards against democratic and performance deficit. The ability of the opposition, voters, academics and civil society to ensure this depends on access to education; discursive quality and diversity; the existence of independent and uncoerced media institutions; and, availability and reliability of information in the public domain. If public finance decisions and their economic impact are not part of the political discourse, democratic accountability is rendered inadequate as a safeguard against political exploitation of public money.
Policy complexity has been cited as a reason why voters may choose not to engage with economic issues [48]. If the electorate is polarised, voters may be influenced by emotive appeals to identity (e.g., nationalism; majoritarianism). They may also prioritise possible short-term gains for themselves in the form of partisan largesse at the expense of other voter groups (populism) [49]. The ability of media, academics and civil society organisations in providing participatory accountability depends on access to reliable data and facts needed to question public finance decisions, monitor spending performance and verify official claims; and also on them being free from government control.
The role of political financing in representative democracies has been a subject of contention for a while now. If a political system becomes heavily dependent on election funding by wealthy donors, rent-seeking political behaviour is increasingly incentivised, and donor interests will likely be prioritised over those of voters. In the United States, the landmark decision in Citizens United [50] dramatically reshaped election campaign financing in favour of corporate donors. In India, the Supreme Court belatedly struck down the Electoral Bond Scheme that was meant to allow anonymous campaign donations to political parties [51]. In democracies without safeguards against financialisation of the election process, public finance is most likely compromised in favour of plutocratic and oligarchic interests. Tax benefits and spending priorities that favour the wealthy are likely consequences.
4.5 Criteria (consequences)
The criteria on which decisions are evaluated has a crucial (reflexive feedback) bearing on agency risks. The evaluation of decisions about public money on a singular criterion: reduces the efficacy of decision-making in an instrumentalist sense [52]; compromises the reliability of the criterion itself [53]; and increases the negative feedback relationship between achieving the criterion and the moral hazard inherent within the decision-making [54]. Public money decision-making is especially susceptible to these concerns, as monetary-fiscal and public finance decisions have widespread economic and other effects.
4.5.1 Public Money and Economic Policy
In a narrow sense, central banks in contemporary systems are tasked with the management of price and financial stability, with additional responsibility for optimal employment. In both normal times and during crises, macroeconomic institutions (central bank-treasury) can deliver on their mandate only if other economic factors (markets; competition; confidence; capital formation; productivity; exogenous stability) are working well. The role of monetary-fiscal policy in ensuring these is limited. The existence and enforcement of laws and regulations (fiscal responsibility; competition; consumer protection; minimum wage and collective bargaining; taxation; banking-finance-contracts-securities-commercial) is crucial for effective economic management. This has to be matched with appropriate policy decisions on capital formation and public spending programs. Monetary and fiscal policy with their narrow targets, instruments and criteria cannot be a substitute for these.
4.5.2 Limited Criteria and Agency Risks
In the United States, the fiscal stimulus-based economic response to the Great Depression ran its course into the 1970s. The Keynesian crisis stabilisation prescription became ‘normal’ economic policy, with the enactment of the Employment Act of 1946 further entrenching political control over public money for the sake of ‘full employment’ [55]. The Great Inflation of the 1970s ended Keynesian unilateralism, only to be replaced with singular focus on the conservative prescription of Monetarism and price stability. The political focus of that era in the United States and the United Kingdom was on ‘fiscal discipline’ and ‘small government’, prioritising free markets, deregulation and the gradual de-funding of government services [56]. The economic experience in these two countries during the twentieth century can be summarised as two periods of ‘reactions’ to crises that hardened political practices in favour of a singular economic viewpoint. This led to increased political and economic risks and moral hazard that helped precipitate the next crisis.
Economic ‘growth’ as the sole determinant of economic performance also creates a moral hazard for public money. Ambitious monetary expansion precipitated the 1990s debt crisis in Japan and the Great Recession in the United States [57]. In China, the decision to ‘grow’ its way out of the Great Recession through massive government spending has been blamed as the source of resource misallocation, ‘zombie lending’ and industrial overcapacity, leading to an apprehension of a debt crisis. Another common source of fiscal wrong-doing has been the view that ‘competitive’ tax incentives and concessions are necessary for attracting large foreign and domestic investment projects, and that these projects ‘pay for themselves’ through employment and economic growth in the long-term [58]. The national government and some states in India have been pursuing this strategy for incentivising investment projects, sometimes with dubious benefits. This has impacted the revenue shortfall and public debt situation in India.
The emphasis on administrative and policy ‘efficiency’ for public finance decisions is detrimental to safeguards as well. The abuse of the concept, albeit with the ostensible aim of reducing waste, graft and fraud, has been particularly problematic for the delivery of government services. The Direct Benefit Scheme (DBS) in India is meant to improve efficiency in public spending, but the discretionary and political nature of the project has made it susceptible to political exploitation. DBS is aimed at replacing the constitutional-legal framework of socio-political rights and entitlements with a scheme of largesse provided as per the whim and favour of the political incumbent [59]. This amounts to politicisation of welfare under the guise of efficiency. Another area where the efficiency argument has undermined political interests is in tax levy and collection. GST – which has significantly compromised the fiscal capacity of states and undermined fiscal federalism in India – was justified as a means of making the indirect tax regime more efficient [60]. The same efficiency argument has also been used by the national government to appropriate revenue decisions, such as determination of royalty on minerals, thereby undermining the authority of individual states to make revenue decisions [61].
4.5.3 Political and Constitutional Criteria
The binary of equity-efficiency is often mentioned in the literature on public finance. Two misinterpretions of this framing are common: first, that these are ends in themselves; and second, that there is an absolute trade-off between them [62]. Efficiency is an intermediate step which is relevant for downstream objectives such as productivity gains. Increase in productivity is itself aimed at achieving other criteria, e.g., increase in real wages, capital formation, and growth. Without end goals – e.g., geostrategic security, welfare and sustainability – economic growth for its own sake does not fulfill any worthwhile purpose. Equity is also a means to an end, which may be political concepts such as equality, egalitarianism or distributive justice.
The objective concept of equity and efficiency are not necessarily at odds, as their downstream criteria may be complementary. Certain types of capital (education; healthcare; housing) are necessary inputs in subjective welfare. To that extent, the relationship between capital formation and welfare is not zero-sum. Similarly, the objective components of ‘growth’ – increase in income, consumption and wealth – may (at least) partially align with the subjective concept of development.
In Blog 3, we had mentioned various approaches towards identifying and prescribing the deliverables of governance [63]. These deliverables can be further decomposed into tangible criteria: security; welfare; productive capacity (capital); and the objective parameters of quality of life. Intangible criteria – equality; autonomy; and dignity – are more difficult to define and evaluate. The first step towards achieving this would be to entrench these objectives in our constitutional-legal system. For instance, progressive welfare and social security are included as objectives in the Indian Constitution. In the absence of enforceability, however, such entrenchment may be of negligible value.
[1] John Locke, Second Treatise of Government (first published 1690, Hackett Publishing Company 1980).
[2] Montesquieu, The Spirit of the Laws.
[3] An individual’s loss due to a collective decision which is not the one preferred by them is the “external cost” of public decision-making (James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (first published 1962, Liberty Fund 1999)).
[4] George Stigler, The Theory of Economic Regulation, 1971.
[5] Anthony Downs, An Economic Theory of Democracy, 1957.
[6] Janosch Prinze and Enzo Rossi, ‘Financial Power and Democratic Legitimacy: How to Think Realistically about Public Debt’ (2022) Social Theory and Practice 115.
[7] Ann-Katrin Kaufhold et al, ‘BaFin (In)dependence – A Reform Proposal’ (2021) SAFE White Paper, No. 82, Leibniz Institute for Financial Research SAFE.
[8] Paul Krugman and Robin Wells, Economics (Worth Publishers 2015). N.Gregory Mankiw, Macroeconomics (7th edn, Worth Publishers 2009).
[9] Richard Musgrave and Peggy Musgrave, Public Finance in Theory and Practice (5th edn, McGraw Hill Book Company 1989).
[10] Warren B. Mosler, ‘Soft Currency Economics’ (1995). L.Randall Wray, Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems (Palgrave Macmillan 2015).
[11] Stephanie Bell, ‘Do Taxes and Bonds Finance Government Spending?’ (2000) Journal of Economic Issues 603; Éric Tymoigne and L. Randall Wray, ‘MMT 101: A Reply to Critics’ (2013) Levy Economics Institute of Bard College (Working Paper No. 778).
[12] There have been occasions when monetary policy did boost real wages for a brief period, e.g., during the early 1930s and 2009. But these gains were at the cost of higher unemployment. In both cases, a tight money policy caused prices to fall unexpectedly. Because nominal wages are sticky in the short run, the fall in prices led to a temporary increase in real wages. Unfortunately, the number of workers who benefited from those higher real wages declined sharply, as the tight money policies also led to dramatically higher unemployment.
[13] The Federal Reserve attempted to pop an asset price bubble during 1928 and 1929 with interest rate hikes, which famously crashed the United States (and world) economy. Japan had a similar experience when interest rate hikes in the early 1990s was a principle causal factor for its “lost decade”.
[14] The National Asset Reconstruction Company Ltd. (NARCL) was established to consolidate and deal with the Non-performing assets (NPAs) of public sector banks. It has, however, been frequently accused of misusing public money and aimed at hiding structural issues and promoting political interests. The NARCL is backed by a government guarantee of Rs.30,000 crores, which creates a significant contingent liability. Controversial loan settlements have masked political interference in banking decisions, and the firewalling of bad loans from the balance sheets of these banks avoids the primary question as to why these loans were given in the first place; John Echeverri-Gent and Renuka Sané, ‘Bargains and Banking: How Institutionalized Political Bargains Have Shaped the Development of Indian Banking’ (2025) Studies in Comparative International Development 310.
[15] In 2008, the Troubled Asset Relief Purchase Program (TARP) was created to stabilise the United States economy and help it recover from the impact of the Great Recession. Both the means (asset purchase) and the beneficiaries (Wall Street and Big Business) reflected the ‘trickle-down’ supply side thinking that went behind the rescue proposal. Rewarding the same institutions that had created the financial crisis to begin with was reflective of the capture of economic thinking and decision-making within the Bush administration.
[16] The legislative process in India is almost entirely controlled by the executive branch. The number of private member’s bills that are tabled is negligible. The preparation, consultation, tabling, debate and voting process is heavily skewed in favour of the ruling party/bloc.
[17] Articles 73 and 162.
[18] There are scenarios, especially in administrative and regulatory enforcement (investigation; data collection; maintaining records; prosecution), where an administrative agency under political control is nonetheless expected to exercise competence and neutrality. Interference into the regular functioning and implementation responsibilities of the administrative state on the pretext of political oversight weakens separation and accountability safeguards.
[19] Chiranjit Lal Chowdhuri v. Union of India AIR 1951 SC 41; R.K. Dalmia v. Justice S.R.Tendolkar AIR 1958 SC 538.
[20] Decentralisation requires that the institutions of governance (executive, administrative, regulatory; legislative; judicial) are replicated at the federal and local levels. In some of these aspects (defence; external affairs; central banking), the requirements of scale and uniformity of decision-making make them better suited to centralisation. Also, the provision of certain public goods (mass transit; education; healthcare) may be feasible only at a certain scale which precludes universalisation. Provisioning for complete decentralisation is, therefore, not a practical aspiration.
[21] James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (first published 1962, Liberty Fund 1999); Jonathan R Macey, ‘Transaction Costs and the Normative Elements of the Public Choice Model: An Application to Constitutional Theory’ (1988) Virginia Law Review 471.
[22] W. D. Nordhaus, ‘The Political Business Cycle’ (1975) Review of Economic Studies 169.
[23] Short-termism is not the only problem associated with political control. The specific context of a country may allow for strategic decisions taken in bad faith and/or with rivalrous intent.
[24] Eric Dubois, ‘Political Business Cycles 40 Years After Nordhaus’ (2016) Public Choice 235.
[25] Institutional context comprises the political system (authoritarian, parliamentary, presidential), electoral calendar, central bank independence, as well as fiscal responsibility and budgetary management rules.
[26] Michael M. Bechtel and Jens Hainmueller, ‘How Lasting Is Voter Gratitude? An Analysis of the Short- and Long-Term Electoral Returns to Beneficial Policy’ (2011) American Journal of Political Science 852. Masakazu Ogami, ‘The Conditionality of Political Short‐Termism: A Review of Empirical and Experimental Studies’ (2024) Politics and Governance 1.
[27] Voter myopia is on account of cognitive biases, information asymmetries and short-lived memory.
[28] Michael K. MacKenzie, ‘Institutional Design and Sources of Short-Termism’ in Iñigo González-Ricoy and Axel Gosseries (eds), Institutions For Future Generations (Oxford University Press 2016).
[29] Tyler John and William MacAskill, Longtermist Institutional Reform in N. Cargill & T. John (eds.), The Long View: Essays on Policy, Philanthropy, and the Long-term Future LPP Working Paper No. 4 (2021)
[30] Clémence Vergne, ‘Democracy, elections and allocation of public expenditures in developing countries’ (2009) European Journal of Political Economy 63. Eric Dubois, ‘Political Business Cycles 40 Years After Nordhaus’ (2016) Public Choice 235.
[31] William Roberts Clark and Usha Nair Reichert, ‘International and Domestic Constraints on Political Business Cycles in OECD Economies’ (1998) International Organization 87. Shanna Rose, ‘Do Fiscal Rules Dampen the Political Business Cycle?’ (2006) Public Choice 407.
[32] In a Westminster-based system which is a Republic, the President is the de jure Head of State, while the Prime Minister is the Head of the Government. Unlike in Presidential and hybrid systems, this is only a nominal arrangement; the Prime Minister is effectively in charge. This fusion between the State and Government may seem appropriate in a democracy, until one realises that in the absence of adequate safeguards, this undermines the separation among the branches of the State. If the Head of State has no real control over the legislature and judiciary, there is a risk that the executive branch will establish de facto dominance over them. In any case, the Presidential veto is a recommended safeguard against legislative subordination or dysfunction.
[33] This arrangement may have been formalised in (at least) the United States. Recently, in Trump vs Slaughter (609 U.S. ___ 2026), the Supreme Court ruled in favour of the President’s authority to fire the heads of independent regulatory authorities, with an exception made for the Federal Reserve alone. Since this doctrine has not yet been considered by the Supreme Court in India, the implications for and applicability to Parliamentary systems like ours is not clear, as yet.
[34] As per the Seventh Schedule (List II, Entry 5) of the Indian Constitution, local government is a state subject.
[35] For instance, see Article 130 of Treaty on the Functioning of the European Union and Section 12 of Germany’s Bundesbank Act, 1992.
[36] In India, the RBI’s legal status does not emanate from the Constitution. It is a statutory body which was created before the Constitution came into existence.
[37] While a Public Debt Management Agency has been proposed in India, it will lack the necessary autonomy from political interference. The RBI has opposed this, as it jeopardises the present scheme of public debt management, tilting the balance in favour of the government.
[38] There have been several instances of government interference in RBI’s functioning in recent years, which have precipitated the resignation of an RBI Governor and Deputy Governor. The Monetary Policy Committee mechanism has eroded some of the RBI Governor’s autonomy regarding monetary policy decisions, and the government has also recently attempted to take the initiative on public debt management. The Indian government has also appropriated control over the appointment of the Chief Election Commissioner through a law passed in 2023, leading to a series of controversies about the decisions made by the Election Commission ever since.
[39] Over the last 20 years, more than 80% of the annual budget presented in the Parliament is ‘guillotined’, on average. In 2004-05, 2013-14, 2018-19 and 2023-24, this figure was one hundred percent; the entire annual budget in those years was passed without a single demand for grant being debated. ‘Parliament Diary-Share of Budget Expenditure: Guillotined vs Discussed’ (PRS Legislative Research, 16 March 2020).
[40] A.N. Jha, Yash Jaluka, and Pinaki Chakraborty, ‘Centrally Sponsored Schemes: Restructuring and Rationalisation’ (2021) NIPFP Working Paper 22.
[41] For example, Mineral Area Development Authority & Anr. v. Steel Authority of India & Anr., SCC (2024) 10 SCC 1 and State of Uttar Pradesh v. Lalta Prasad Vaish and Sons (2024) 17 SCC 1.
[42] According to Richard Musgrave, the public benefits of consuming merit goods are higher than the private benefits from doing so. Since consumers usually do not consider public benefits (or costs) while making consumption decisions, merit goods are under-produced. Richard A. Musgrave and Peggy B. Musgrave, Public Finance in Theory and Practice (5th edn, Mc-Graw Hill Book Company 1989) Ch 4.
[43] Clara Delavallade, ‘Corruption and Distribution of Public Spending in Developing Countries’ (2006) Journal of Economics and Finance 222.
[44] M. Emranul Haque and Richard Kneller, ‘Public Investment and Growth: The Role of Corruption’ (2008) Centre for Growth and Business Cycle Research Discussion Paper Series 98, The University of Manchester; Paolo Mauro, ‘Corruption and the composition of government expenditure’ (1998) Journal of Public Economics 263.
[45] Min Shi and Jakob Svensson, ‘Political Budget Cycles: Do They Differ Across Countries and Why?’ (2006) Journal of Public Economics 1367.
[46] For instance, in India, as a matter of practice, a full budget is not presented by the incumbent in the election year. The Election Commission’s model code of conduct does not allow announcement of major policy decisions in the interim budget.
[47] Ashwini Kumar Upadhyay v. Union of India, (2023) 14 SCC 611.
[48] Masakazu Ogami, ‘The Conditionality of Political Short‐Termism: A Review of Empirical and Experimental Studies’ (2024) Politics and Governance 1, 3.
[49] Assaf Shmuel, ‘Populist Leaders and the Political Budget Cycle’ (2025) Electoral Studies 102965.
[50] Citizens United v. FEC, 558 U.S. 310 (2010).
[51] Association for Democratic Reforms v. Union of India 2024 INSC 113.
[52] Ashby’s ‘law of requisite variety’ states that a system can respond effectively to the complexity of its environment only if its response mechanism possesses as much variety as the environment itself. (J.D.R. de Raadt, ‘Ashby’s Law of Requisite Variety: An Empirical Study’ (1987) Cybernetics and Systems: An International Journal 517, 517).
[53] Goodhart’s law states that when a measure becomes a target, it ceases to be an effective measure. (K.A. Chrystal and P.D. Mizen, ‘Goodhart’s Law: Its Origins, Meaning and Implications for Monetary Policy’ (2003) Central Banking, Monetary Theory and Practice: Essays in Honour of Charles Goodhart 221).
[54] Campbell’s law states that the more prominent a measure of performance becomes, greater the incentives to manipulate the conditions of achieving that measure, rather than to achieve the actual performance itself. (Alexander M. Sidorkin, ‘Campbell’s Law and the Ethics of Immensurability’ (2016) Studies in Philosophy and Education 321, 321).
[55] The Act made it the responsibility of the Federal Government “to promote maximum employment, production, and purchasing power” and greater coordination between fiscal and monetary policies.
[56] Ronald Reagan and Margaret Thatcher believed in free markets, deregulation and ‘small government’. While the immediate effects of monetary tightening and fiscal discipline were expectedly positive, the continuing focus on incentivising the owners of capital due to belief in ‘trickle-down’ led to regressive tax and spending policies in both countries for decades.
[57] Although multiple causal factors have been attributed to the Great Recession, access to cheap credit due to the Federal Reserve’s monetary expansion (2002-2006) did make mortgages cheap and fueled the real estate bubble. Steven Horwitz, ‘Causes and Cures of the Great Recession’ (2012) Economic Affairs 65.
[58] This reasoning has allegedly been a pretext for cronyism in public finance decisions. Recently, it has been alleged that the Indian government sanctioned incentive schemes for investment projects as a quid pro quo for party funding through the Electoral Bond Scheme; D. Ananda, ‘Electoral Bonds: A Peril to Democracy and Transparent Elections in India’ (2023) Journal of Liberty and International Affairs 89.
[59] Shalini Gupta, ‘Direct Benefit Transfer and the Welfare State: Evaluating Social Justice in Indian Democracy’ (2025) International Journal of Political Science and Governance 218.
[60] GST has especially impacted small businesses in India, increasing compliance costs, uncertainty and ‘tax terrorism’ for them. Aditya Kashyap, ‘The Impact of Goods and Services Tax (GST) on Small Businesses in India: A Comprehensive Analysis’ (2025) <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5280352>.
[61] Sanyukta Chowdhury and Amit Chowdhury, ‘The Supreme Court and the Challenges for Fiscal Federalism: Mineral Area Development Authority v Steel Authority of India’ (2024) National Law School Journal 65, 69-76.
[62] The conservative view on this has been that redistribution is suboptimal due to administrative costs and the reduced incentive to work. Arthur Okun, Equality and Efficiency: The Big Tradeoff (The Brookings Institution 1975).
[63] See Part III of this Blog Series (Sanyukta Chowdhury and Amit Chowdhury, Public Finance <https://forum.nls.ac.in/ijiel-exchange-blog/public-finance/>)