Law and the Limits of Government

Law and the Limits of Government

Temporary versus Permanent Legislation

Frank Fagan

Why do legislatures pass laws that automatically expire? Why are so many tax cuts sunset? In this first book-length treatment of those questions, the author explains that legislatures pass laws temporarily in order to reduce opposition from the citizenry, to increase the level of information revealed by lobbies, and to externalize the political costs of changing the tax code on to future legislatures. This book provides a careful analysis which does not normatively prescribe either permanent or temporary legislation in every instance, but rather specifies the conditions for which either permanent or temporary legislation would maximize social welfare.

Chapter 6: Passage probability

Frank Fagan

Subjects: economics and finance, law and economics, law - academic, constitutional and administrative law, law and economics


While Part I provides a theory of the selection of temporary and permanent timing rules in various strategic contexts, Part II provides empirical evidence. Chapters 6 and 7 test for the existence of short- to medium-term normative effects and long-term normative effects respectively, and whether or not they vary with the selection of a timing rule. This chapter takes up the first question related to short- to medium-term effects. Proposition 3 shows that the selection of temporary legislation minimizes transactions cost when residual effects such as legal expression cause compliance to increase over time. When compliance is increasing, a temporary timing rule allows legislators to save on total legislation costs since increases in compliance lead to decreases in extension costs of temporary legislation. These cost savings are unavailable with permanent timing rules since permanent enactment costs are allocated to the initial period. In order to test this theory, we measure the level of transactions cost of legislation, and look for variance in those costs over multiple policy domains. Short of developing a full theory of what makes a policy domain more expressive than another, we assume that some policy domains, e.g. judiciary, leave more beneficial residual effects that drive legislation costs down than others, e.g. agriculture.

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