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Are Budget Deficits Used Strategically?

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  • Luisa Lambertini

    ()
    (Boston College)

Abstract

This paper tests empirically the strategic explanation of budget deficits suggested by Tabellini and Alesina and Persson and Svensson. Tabellini and Alesina suggest that governments with di erent political orientation provide different public goods. The model predicts that: a) public good provision follows a political pattern; b) the incumbent that anticipates her defeat at the next election runs budget deficits to tie the hands of the future government. Persson and Svensson suggest that liberal governments prefer more public good provision than conservative ones. The model predicts that: a) the conservative (liberal) incumbent that anticipates her defeat at the next election runs budget deficits (surpluses); b) budget imbalances have a political color. Using U.S. and pooled data for sixteen OECD countries, we find little evidence that the incumbent's probability of being voted out of office explains budget deficits, that the provision of public goods follows a political pattern or that budget imbalances have a political color.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 578.

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Length: 38 pages
Date of creation: 01 Jun 2003
Date of revision:
Handle: RePEc:boc:bocoec:578

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Related research

Keywords: Budget deficit; Voting; Elections;

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  1. Alesina, Alberto F & Tabellini, Guido, 1988. "Voting on the Budget Deficit," CEPR Discussion Papers 269, C.E.P.R. Discussion Papers.
  2. Garfinkel, Michelle R & Glazer, Amihai, 1994. "Does Electoral Uncertainty Cause Economic Fluctuations?," American Economic Review, American Economic Association, vol. 84(2), pages 169-73, May.
  3. Fair, Ray C, 1978. "The Effect of Economic Events on Votes for President," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 159-73, May.
  4. Trehan, Bharat & Walsh, Carl E., 1988. "Common trends, the government's budget constraint, and revenue smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 425-444.
  5. Alesina, Alberto & Londregan, John, 1993. "A Model of the Political Economy of the United States," Scholarly Articles 4552529, Harvard University Department of Economics.
  6. Hausman, Jerry A., 1983. "Specification and estimation of simultaneous equation models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 7, pages 391-448 Elsevier.
  7. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 651-78, August.
  8. Murphy, Kevin M & Topel, Robert H, 1985. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 370-79, October.
  9. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
  10. James J. Heckman & Robert J. Willis, 1975. "A Beta-Logistic Model for the Analysis of Sequential Labor Force Participation by Married Women," NBER Working Papers 0112, National Bureau of Economic Research, Inc.
  11. Alesina, A. & Londregan, J.A. & Rosenthal, H., 1990. "A Model Of The Political Economy Of The United States," GSIA Working Papers 1990-27, Carnegie Mellon University, Tepper School of Business.
  12. Henning Bohn & Robert P. Inman, 1996. "Balanced Budget Rules and Public Deficits: Evidence from the U.S. States," NBER Working Papers 5533, National Bureau of Economic Research, Inc.
  13. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
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