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The Political Economy of Fiscal Policy: Survey

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  • Marcela Eslava

Abstract

This paper surveys the recent literature on the political economy of fiscal policy, in particular the accumulation of government debt. We examine three possible determinants of fiscal balances: opportunistic behavior by policymakers, heterogeneous fiscal preferences of either voters or politicians, and budget institutions. We focus on the contributions of the last 10 years and emphasize findings related to developing countries. We include a recent body of literature on the fiscal preferences of voters, which, interestingly, seems to suggest that voters do not favor high-spending governments. We also report some original empirical evidence. First, we test different hypotheses from the political economy literature in a simultaneous manner for a large set of both developed and developing countries. We find that less-fragmented governments and a greater ability of voters to monitor fiscal policy are related to lower deficits; the estimated effects are larger than when the two hypotheses are evaluated separately, as the existing literature does. Second, we suggest the role of the courts in the determination of fiscal policy as a promising new avenue of research, and present some suggestive novel evidence on the importance of this channel.

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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4487.

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Date of creation: Oct 2006
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Handle: RePEc:idb:wpaper:4487

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  9. Kneebone, R.D. & McKenzie, K.J., 1998. "Electoral and Partisan Cycles in Fiscal Policy: an Examination of Canadian Provinces," Papers 98-06, Calgary - Department of Economics.
  10. Stein, Ernesto & Hommes, Rudolf & Hausmann, Ricardo & Alesina, Alberto, 1999. "Budget Institutions and Fiscal Performance in Latin America," Scholarly Articles 4553021, Harvard University Department of Economics.
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  24. Sutter, Matthias, 2003. " The Political Economy of Fiscal Policy: An Experimental Study on the Strategic Use of Deficits," Public Choice, Springer, vol. 116(3-4), pages 313-32, September.
  25. Gonzalez, Maria de los Angeles, 2002. "Do Changes in Democracy Affect the Political Budget Cycle? Evidence from Mexico," Review of Development Economics, Wiley Blackwell, vol. 6(2), pages 204-24, June.
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Cited by:
  1. Asfaha, Samuel, 2007. "National Revenue Funds: Their Efficacy for Fiscal Stability and Intergenerational Equity," MPRA Paper 7656, University Library of Munich, Germany.
  2. Jamshed Y. Uppal, 2011. "Government Budget Deficits and the Development of the Bond Market in Pakistan: Issues and Challenges," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 159-198, September.
  3. Sebastián Nieto Parra & Javier Santiso, 2008. "Wall Street and Elections in Latin American Emerging Economies," OECD Development Centre Working Papers 272, OECD Publishing.
  4. Marcela Eslava & Oskar Nupia, 2010. "Political Fragmentation and Government Spending: Bringing Ideological Polarization into the Picture," DOCUMENTOS CEDE 006713, UNIVERSIDAD DE LOS ANDES-CEDE.
  5. Chowdhury, Anis, 2008. "Growth Oriented Macroeconomic Policies for Small Islands Economies: Lessons from Singapore," Working Paper Series RP2008/47, World Institute for Development Economic Research (UNU-WIDER).
  6. Bernd Hayo & Florian Neumeier, 2011. "Political Leaders’ Socioeconomic Background and Fiscal Performance in Germany," MAGKS Papers on Economics 201141, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  7. Marcus Melo & Carlos Pereira & Saulo Souza, 2010. "The Political Economy of Fiscal Reform in Brazil: The Rationale for the Suboptimal Equilibrum," Research Department Publications 4655, Inter-American Development Bank, Research Department.
  8. Eduardo Lora, 2008. "El Futuro de los Pactos Fiscales en América Latina," IDB Publications 7653, Inter-American Development Bank.
  9. Massimo Antonini & Kevin Lee & Jacinta Pires, . "Public Sector Debt Dynamics: The Persistence and Sources of Shocks to Debt in Ten EU Countries," Discussion Papers 11/08, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  10. Meloni, Osvaldo, 2012. "Is there an electoral-motivated crime rate cycle? Evidence from Argentina," MPRA Paper 40177, University Library of Munich, Germany.
  11. Arezki, Rabah & Ismail, Kareem, 2013. "Boom–bust cycle, asymmetrical fiscal response and the Dutch disease," Journal of Development Economics, Elsevier, vol. 101(C), pages 256-267.

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