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Income distribution, fiscal policy, and delays in stabilization

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  • Roberto Perotti
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    Abstract

    This paper presents an explanation of the cycles of large fiscal expansions and macroeconomic stabilizations that are frequently observed in developing countries. In the model, different coalitions form and change depending on the position of three groups over the degree of redistribution and the timing of debt repayment. I show that seemingly unsustainable fiscal policies arise from a coalition of the poor and the rich when the distribution of income is highly unequal. When income is distributed more equally, instead, the patterns of fiscal policy and of the trade balance are consistent with the standard predictions of representative agent models. These features of the model seem consistent with available empirical evidence.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/13841289608523367
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Journal of Economic Policy Reform.

    Volume (Year): 1 (1996)
    Issue (Month): 4 ()
    Pages: 335-355

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    Handle: RePEc:taf:jpolrf:v:1:y:1996:i:4:p:335-355

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    Related research

    Keywords: Income Distribution; Fiscal Policy; Stabilization Policies;

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    Cited by:
    1. Marco Ferroni & Mercedes Mateo Díaz & J. Mark Payne, 2007. "Development under Conditions of Inequality and Distrust: An Exploration of the Role of Social Capital and Social Cohesion in Latin America," IDB Publications 53818, Inter-American Development Bank.
    2. Christian Volpe Martincus & Sandra Milena Gómez, 2009. "Trade Policy and Export Diversification: What Should Colombia Expect from the FTA with the United States," IDB Publications 9292, Inter-American Development Bank.

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