The political economy of balanced-budget rules
AbstractThe paper first reviews the evolution of federal fiscal rules in the United States, showing a trend towards balanced-budget rules, not golden rules. An explanation to this trend is provided in a model that includes voter's preferences that are skewed by the history of the budget structure, and fiscal rules on the budget. Previous results in the literature are generalized, and the implications of fiscal rules for the use of debt as a strategic asset in the hands of politicians are derived. The inclusion of a golden rule of public finance is compared with that of a balanced-budget rule. Because of the presence of habits, we show that politicians are more prone to adopt balanced-budget rules than a golden rule.
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Bibliographic InfoPaper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2009-06.
Date of creation: 2009
Date of revision:
Budget deficit; debt; political economy; fiscal rules; habit effect;
Find related papers by JEL classification:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
- NEP-CDM-2009-09-26 (Collective Decision-Making)
- NEP-PBE-2009-09-26 (Public Economics)
- NEP-POL-2009-09-26 (Positive Political Economics)
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