Comparing tax expenditures and direct subsidies: The role of legislative committee structure

This paper analyzes the impact of legislative committee structure on policy outcomes, comparing a `tax committee' (enacting tax expenditures) and a decentralized system of specialized committees (undertaking direct spending). An endogenous commodity taxation framework is combined with models of legislative bargaining and committee voting. The main conclusion is that the tax committee structure gives rise to lower subsidy levels under a wide range of circumstances. However, it is only under a more restrictive set of assumptions that social welfare is higher in the tax committee regime. This theoretical analysis is illustrated by two examples of institutional change in Congress.