ABSTRACT
During the first half of this century, the conventional wisdom in normative public-finance theory was highly critical of the earmarking of tax revenues. Any restriction on the budgetary flexibility of the fiscal authority was adjudged to be undesirable, almost by definition. Such normative condemnation of earmarking was a consequence of the implicit acceptance of a political model that excluded all elements of democracy. The introduction of electoral feedbacks generates categorically different understandings of the fiscal process, which may lead to quite different evaluations of revenue earmarking. In one limiting case the taxing-spending operation can be modelled as an idealized exchange. In this analytical setting, sectoral budgeting, a form of earmarking, emerges as a necessity in any fiscal process that meets standard efficiency norms. A somewhat less restricted, but still limiting, model may incorporate pure majoritarianism. Such a model departs from that of pure fiscal exchange and allows for politically coerced transfers. In its idealized form, however, this majoritarian model does not introduce the independent existence of the ‘fisc’, as such. The normative implications for the desirability of earmarking institutions are far from clear.
