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The American Economic Review Vol. 104, No. 10 (OCTOBER 2014) , pp. 2941-2974 (34 pages) Published By: American Economic Association https://www.jstor.org/stable/43495310 Read and download Log in through your school or library Alternate access options For independent researchers Subscribe to JPASS Unlimited reading + 10 downloads Purchase article $10.00 - Download now and later Monthly Plan
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Abstract Do mandatory spending programs such as Medicare improve efficiency? We analyze a model with two parties allocating a fixed budget to a public good and private transfers each period over an infinite horizon. We compare two institutions that differ in whether public good spending is discretionary or mandatory. We model mandatory spending as an endogenous status quo since it is enacted by law and remains in effect until changed. Mandatory programs result in higher public good spending; furthermore, they ex ante Pareto dominate discretionary programs when parties are patient, persistence of power is low, and polarization is low. Journal Information The American Economic Review is a general-interest economics journal. Established in 1911, the AER is among the nation's oldest and most respected scholarly journals in the economics profession and is celebrating over 100 years of publishing. The journal publishes 11 issues containing articles on a broad range of topics. Publisher Information Once composed primarily of college and university professors in economics, the American Economic Association (AEA) now attracts 20,000+ members from academe, business, government, and consulting groups within diverse disciplines from multi-cultural backgrounds. All are professionals or graduate-level students dedicated to economics research and teaching. Rights & Usage This item is part of a JSTOR Collection. When it comes to spending money, there are things that you want to buy — and things you have to pay for. That's the line between discretionary expenses and everything else. Wants versus needs. What are discretionary expenses?A discretionary expense is voluntary spending. You want to buy something, but it isn't mandatory. Entertainment and recreational purchases fall into this category. On the other hand, bills such as rent, mortgage payments and utilities are nondiscretionary expenses. You have to pay those. When working with a budget, discretionary spending is drawn from the money left over after paying the essential bills. What are examples of discretionary expenses?"I would describe discretionary spending as the fun stuff, the things you want to spend money on, such as going out to eat, buying clothes, gifts, hobbies, entertainment, vacations, things like that," says Amy Jo Lauber, a certified financial planner with Lauber Financial Planning in West Seneca, New York. Like there are different types of finance, discretionary expenses can take many forms and may include:
All of these items add to your quality of life but need to come after paying the bills and, optimally, after paying yourself. Before you build a budget Track all your spending at a glance to understand your trends and spot opportunities to save money.  How do discretionary expenses fit into a budget?You may be spending more on wants than you realize. That can block you from putting aside enough money for emergency needs and retirement savings. Accounting for discretionary expenses is a part of the 50/30/20 budget, a plan for controlled spending. In this system, up to half of your budget is allocated to needs, 30% to wants (the discretionary expenses we're talking about) and 20% to savings and debt repayment. "I do like and use the 50/30/20 budget," Lauber says. "I think it works for people who don't want to feel guilty about spending on certain things and need guidance on saving. It provides a simple, reasonable framework free from the fuss of tracking spending in all the categories." To start a simple budget, determine your monthly take-home pay, choose a budget plan that works for you and keep an eye on it. You may find it's easier than you thought. Making good financial decisionsThinking of money like this — in buckets of wants, needs and saving for the future — is part of a process for making good financial decisions. "I encourage people to pay attention to all of their spending, not only discretionary, and moreover, to be intentional about their money, to make decisions with self-awareness, based on one's values and needs," Lauber says. "This involves using the positive emotions such as hope, joy, delight, generosity, creativity and dreams to help us manage money in a way that is enjoyable and sustainable." For example, try prioritizing the positive emotions tied to long-term plans, such as retirement or having no financial worries, rather than those related to the short-term satisfaction of impulse spending. Being thoughtful about today's discretionary expenses can feed your long-term wants and goals. If you want to start getting a handle on your spending, NerdWallet has compiled the best expense tracking apps based on ratings and popularity among users. What are examples of mandatory spending?Outlays for the nation's three largest entitlement programs (Social Security, Medicare, and Medicaid) and for many smaller programs (unemployment compensation, retirement programs for federal employees, student loans, and deposit insurance, for example) are mandatory spending.
What are 2 examples of discretionary spending?Types of Discretionary Expenses. Vacations and travel expenses.. Automobiles.. Alcohol and tobacco.. Restaurants and other entertainment-related expenses.. Coffee and specialty beverages.. Hobby and sports-related expenses, such as crafting, sewing, and gym memberships.. What is discretionary and mandatory spending?In conclusion, mandatory spending is spending that has been predetermined by existing laws and must be done each year, while discretionary spending is what Congress decides each year how much to spend on different programs.
What are examples of discretionary spending in the government?Nondefense discretionary spending funds an array of federal activities in areas such as education, transportation, income security, veterans' health care, and homeland security. Over the past four decades, spending in that category has generally ranged from about 3 percent to 4 percent of GDP.
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