Fiscal Reconstruction Policy and Free Riding Behavior of Interest Groups

This paper investigates dynamic properties of fiscal reconstruction process by analyzing the infinite duration dynamic game among various interest groups with a framework of voluntary acceptance of tax burden. By comparing the first best solution, the open-loop solution under enforceable commitments, and the feedback solution without commitment, we explore the free riding behavior of interest groups during fiscal reconstruction process and investigate the normative role of taxes and transfers to internalize the free riding problem.