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The Political Economy of Budget Deficits

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  • Alberto Alesina
  • Roberto Perotti

Abstract

This paper provides a critical survey of the literature on politico-institutional determinants of the government budget. We organize our discussion around two questions: Why did certain OECD countries, but not others, accumulate large public debts? Why did these fiscal imbalances appear in the last twenty years rather than before? We begin by discussing the 'tax smoothing' model and conclude that this approach alone cannot provide complete answers to these questions. We will then proceed to a discussion of political economy models, which we organize in six groups: i) Models based upon opportunistic policy makers and naive voters with 'fiscal illusion'; ii) Models of intergenerational redistributions; iii) Models of debt as a strategic variable, linking the current government with the next one; iv) Models of coalition governments; v) Models of geographically dispersed interests; vi) Models emphasizing the effects of budgetary institutions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4637.

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Date of creation: Feb 1994
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Publication status: published as With Jose Tavares, published as "The Political Economy of Fiscal Adjustments", Brookings Paper, Vol. 28, no. 1 (1998): 197-248.
Handle: RePEc:nbr:nberwo:4637

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  1. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  2. Lucas, Robert Jr., 1986. "Principles of fiscal and monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 17(1), pages 117-134, January.
  3. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 25(2), pages 151-62, May.
  4. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, Elsevier, vol. 33(5), pages 903-933, May.
  5. Alesina, Alberto F & Cohen, Gerald D & Roubini, Nouriel, 1992. "Macroeconomic Policy and Elections in OECD Democracies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 608, C.E.P.R. Discussion Papers.
  6. Alesina, Alberto & Cohen, Gerald D. & Roubini, Nouriel, 1993. "Electoral business cycle in industrial democracies," European Journal of Political Economy, Elsevier, Elsevier, vol. 9(1), pages 1-23, March.
  7. Cukierman, Alex & Meltzer, Allan H, 1989. "A Political Theory of Government Debt and Deficits in a Neo-Ricardian Framework," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 713-32, September.
  8. Drazen, A. & Grilli, V., 1991. "The Benefits of Crisis for Economic Reforms," Papers, Tel Aviv 27-91, Tel Aviv.
  9. Alberto Alesina & Guido Tabellini, 1988. "External Debt, Capital Flight and Political Risk," NBER Working Papers 2610, National Bureau of Economic Research, Inc.
  10. Fiorina, Morris P. & Noll, Roger G., . "Voters, Bureaucrats and Legislators: A Rational Choice Perspective on the Growth of Bureaucracy," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 159, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers, Tel Aviv - the Sackler Institute of Economic Studies 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
  12. Alesina, Alberto & Rosenthal, Howard, 1996. "A Theory of Divided Government," Econometrica, Econometric Society, Econometric Society, vol. 64(6), pages 1311-41, November.
  13. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  14. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(1), pages 55-93.
  15. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
  16. Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996. "Political Instability and Economic Growth," Scholarly Articles 4553024, Harvard University Department of Economics.
  17. Bliss, Christopher & Nalebuff, Barry, 1984. "Dragon-slaying and ballroom dancing: The private supply of a public good," Journal of Public Economics, Elsevier, Elsevier, vol. 25(1-2), pages 1-12, November.
  18. repec:fth:coluec:637 is not listed on IDEAS
  19. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, World Bank Group, vol. 6(3), pages 353-98, September.
  20. Perotti, Roberto, 1994. "Income distribution and investment," European Economic Review, Elsevier, Elsevier, vol. 38(3-4), pages 827-835, April.
  21. Milesi-Ferretti, Gian Maria & Spolaore, Enrico, 1994. "How cynical can an incumbent be? Strategic policy in a model of government spending," Journal of Public Economics, Elsevier, Elsevier, vol. 55(1), pages 121-140, September.
  22. Mathew D. McCubbins, 1991. "Party Governance and U.S. Budget Deficits: Divided Government and Fiscal Stalemate," NBER Chapters, National Bureau of Economic Research, Inc, in: Politics and Economics in the Eighties, pages 83-122 National Bureau of Economic Research, Inc.
  23. Alesina, Alberto & Carliner, Geoffrey (ed.), 1991. "Politics and Economics in the Eighties," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226012810, 01-2013.
  24. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, Springer, vol. 1(2), pages 189-211, June.
  25. Cohen, Gerald & Alesina, Alberto & Roubini, Nouriel, 1992. "Macroeconomic Policy and Elections in OECD Democracies," Scholarly Articles 4553023, Harvard University Department of Economics.
  26. G Milesi-Feretti, 1993. "The Disadvantage of Tying Their Hands: On the Political Economy of Policy Commitments," CEP Discussion Papers, Centre for Economic Performance, LSE dp0125, Centre for Economic Performance, LSE.
  27. Nouriel Roubini & Jeffrey Sachs, 1988. "Political and Economic Determinants of Budget Deficits in the IndustrialDemocracies," NBER Working Papers 2682, National Bureau of Economic Research, Inc.
  28. Alberto Alesina & Gerald D. Cohen & Nouriel Roubini, 1992. "Macroeconomic Policy And Elections In Oecd Democracies," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 4(1), pages 1-30, 03.
  29. Peltzman, Sam, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(2), pages 327-61, May.
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