Abstract
It is argued in this note that earmarked taxes may be employed as a precautionary device to exert damage control so that problems in one budgetary item will not be spread to other budgetary items. The compartmentalization design of a submarine is a fitting metaphor. Theoretically, this consideration is complementary to, but more straightforward than, the arguments of Buchanan and Brennan (1978) and Buchanan (1991). Empirically, it is relevant to public policies such as national health insurance and social security, which not only incur substantial expenditures but also have the tendency to have explosive growth in expenditures. Although the compartmentalization property of the earmarking arrangement is logically sound, the actual working of the political process determines its ultimate relevance in reality.
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