According to our model effective 'budgetary' separation of power occurs in the states with the line-item veto when the Governor is not aligned with the Legislature. Only then is the Legislature, which approves the budget and sets the tax level, not the full residual claimant of a tax release....

This paper proposes a normative theory of constitutional rules. The first-best cannot be achieved whenever constitutional rules cannot be made contingent on information about the costs and benefits of policy reforms. We characterize and welfare rank four classes of second best constitutions:...