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A Common Pool Theory of Deficit Bias Correction

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  • Krogstrup, Signe
  • Wyplosz, Charles

Abstract

The budget deficit bias is modeled as the result of a domestic common pool problem and of an international externality. Along with Piguvian taxes, a number of policy measures are examined and welfare-ranked: deficit ceilings, golden rules and delegation. In general, the combination of delegation and an optimally-set deficit ceiling deliver the social optimum, even if the deficit ceiling is not credible.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5866.

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Date of creation: Oct 2006
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Handle: RePEc:cpr:ceprdp:5866

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Keywords: common pool; deficit bias; fiscal institutions; fiscal restraints; fiscal rules; stability pact;

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Citations

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Cited by:
  1. Mark Hallerberg & Guntram Wolff, 2008. "Fiscal institutions, fiscal policy and sovereign risk premia in EMU," Public Choice, Springer, vol. 136(3), pages 379-396, September.
  2. Sébastien Wälti & Signe Krogstrup, 2006. "Women and budget deficits," Trinity Economics Papers tep0307, Trinity College Dublin, Department of Economics, revised Apr 2007.
  3. Signe Krogstruo & Sébastien Wälti, 2009. "Enfranchisement and budget deficits: a theoretical note," IHEID Working Papers 01-2009, Economics Section, The Graduate Institute of International Studies.
  4. Jürgen von Hagen & Charles Wyplosz, 2008. "EMU's Decentralized System of Fiscal Policy," European Economy - Economic Papers 306, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  5. Beetsma, Roel & van der Ploeg, Frederick, 2007. "The Political Economy of Public Investment," CEPR Discussion Papers 6090, C.E.P.R. Discussion Papers.
  6. Jürgen Hagen, 2010. "Sticking to fiscal plans: the role of institutions," Public Choice, Springer, vol. 144(3), pages 487-503, September.
  7. Ringa Raudla, 2010. "Governing budgetary commons: what can we learn from Elinor Ostrom?," European Journal of Law and Economics, Springer, vol. 30(3), pages 201-221, December.
  8. Simon Wren-Lewis, 2011. "Comparing the delegation of monetary and fiscal policy," Economics Series Working Papers 540, University of Oxford, Department of Economics.
  9. Stähler, Nikolai, 2007. "Taxing deficits to restrain government spending and foster capital accumulation," Discussion Paper Series 1: Economic Studies 2007,26, Deutsche Bundesbank, Research Centre.
  10. Roel M.W.J. Beetsma & Frederick van der Ploeg, 2007. "Partisan Public Investment and Debt: The Case for Fiscal Restrictions," Economics Working Papers ECO2007/37, European University Institute.
  11. Jerome Creel & Etienne Farvaque, 2009. "The political economy of balanced-budget rules," Documents de Travail de l'OFCE 2009-06, Observatoire Francais des Conjonctures Economiques (OFCE).
  12. Sophia Gollwitzer, . "Budget Institutions and Fiscal Performance in Africa," Discussion Papers 10/02, University of Nottingham, CREDIT.
  13. Xavier Debrun & Manmohan S. Kumar, 2007. "The Discipline-Enhancing Role of Fiscal Institutions," IMF Working Papers 07/171, International Monetary Fund.
  14. Beetsma, Roel & Ribeiro, Marcos Poplawski & Schabert, Andreas, 2008. "A Comparison of Debt and Primary-deficit Constraints," CEPR Discussion Papers 6897, C.E.P.R. Discussion Papers.
  15. Hallerberg, Mark & Wolff, Guntram B., 2006. "Fiscal institutions, fiscal policy and sovereign risk premia," Discussion Paper Series 1: Economic Studies 2006,35, Deutsche Bundesbank, Research Centre.

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