Agenda

Doruk Cetemen (LUISS) - Regulating Pre-Election Spending: A Dynamic Analysis (joint work with Leandro Gorno, Helios Herrera, and Lucas Maestri)

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 widespread 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. We analyze this welfare loss and identify the conditions under which it is most severe.