Elected representatives have little incentive to pursue the interests of those electing
them once they are elected. This well-known principle-agent problem leads, in a variety
of theories of government, to nonoptimally large levels of government expenditure.
An implication is that budgetary rules are seen as necessary to constrain politicians’
tax and spending behavior. Popular among such constraints are various Balanced Budget
Amendment proposals. These approaches, however, are shown here to have serious limitations,
including failure to address the central concern of spending level. An alternative
approach is advanced here that relies on a Coase-like mechanism that transfers control
of government spending to the voter. Prisoner's dilemma incentives and political
competition are seen to be critical to the superiority of the present mechanism to
approaches requiring budget balance.