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Why Are Stabilizations Delayed?

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  • Alesina, Alberto
  • Drazen, Allan

Abstract

When a stabilization has significant distributional implications (e.g., tax increases to eliminate a large budget deficit), socioeconomic groups may attempt to shift the burden of stabilization onto other groups. The process leading to stabilization becomes a "war of attrition," each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden. The authors solve for the expected time of stabilization in a model of "rational" delay and relate it to several political and economic variables. They motivate this approach and its results by comparison to historical and current episodes. Copyright 1991 by American Economic Association.

Suggested Citation

  • Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-1188, December.
    • Handle: RePEc:aea:aecrev:v:81:y:1991:i:5:p:1170-88
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