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Debts and Deficits with Fragmented Fiscal Policymaking

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  • Andres Velasco
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    Abstract

    This paper develops a political-economic model of fiscal policy - one in which government resources are a common property' out of which interest groups can finance expenditures on their preferred items. This setup has striking macroeconomic implications. Transfers are higher than a benevolent planner would choose; fiscal deficits emerge even when there are no reasons for intertemporal smoothing, and in the long run government debt tends to be excessively high; peculiar time profiles for transfers can emerge, with high positive net transfers early on giving way to high taxes later on; and multiple dynamic equilibrium paths can occur starting at the same initial level of government debt.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6286.

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    Date of creation: Nov 1997
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    Publication status: published as Velasco, Andres. "Debts And Deficits With Fragmented Fiscal Policymaking," Journal of Public Economics, 2000, v76(1,Apr), 105-125.
    Handle: RePEc:nbr:nberwo:6286

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    1. Alex Cukierman & Sebastian Edwards & Guido Tabellini, 1989. "Seigniorage and Political Instability," NBER Working Papers 3199, National Bureau of Economic Research, Inc.
    2. Alberto Alesina & Ricardo Hausmann & Rudolf Hommes & Ernesto Stein, 1996. "Budget Institutions and Fiscal Performance in Latin America," NBER Working Papers 5586, National Bureau of Economic Research, Inc.
    3. Alberto Alesina & Allan Drazen, 1989. "Why are Stabilizations Delayed?," NBER Working Papers 3053, National Bureau of Economic Research, Inc.
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    7. Buiter, W.H. & Corsetti, G. & Roubini, N., 1992. "Excessive Deficits: Sense and Nonsence in the Treaty of Maastricht," Papers 674, Yale - Economic Growth Center.
    8. Ernesto H. Stein & Ernesto Talvi & Alejandro Grisanti, 1998. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," Research Department Publications 4110, Inter-American Development Bank, Research Department.
    9. V. V. Chari & Patrick J Kehoe, 1998. "Sustainable Plans," Levine's Working Paper Archive 600, David K. Levine.
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    15. Carlos E. Zarazaga, 1993. "Hyperinflations and moral hazard in the appropriation of seigniorage," Working Papers 93-26, Federal Reserve Bank of Philadelphia.
    16. Aizenman, Joshua, 1992. "Competitive Externalities and the Optimal Seigniorage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 61-71, February.
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    18. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
    19. Aaron Tornell & Andres Velasco, 1995. "Money-Based versus Exchange Rate-Based Stabilization with Endogenous Fiscal Policy," NBER Working Papers 5300, National Bureau of Economic Research, Inc.
    20. V.V. Chari & Harold Cole, 1993. "A contribution to the theory of pork barrel spending," Staff Report 156, Federal Reserve Bank of Minneapolis.
    21. Robert Holzmann, 1991. "Budgetary Subsidies in Centrally Planned Economies in Transition," IMF Working Papers 91/11, International Monetary Fund.
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    Cited by:
    1. Bernardo Bortolotti & Paolo Pinotti, 2008. "Delayed privatization," Temi di discussione (Economic working papers) 663, Bank of Italy, Economic Research and International Relations Area.
    2. Sell, Friedrich L., 2003. "Die Stabilitätsprogramme der EU: Anspruch und Wirklichkeit in den ersten vier Jahren der Europäischen Währungsunion," Working Papers in Economics 2003,2, Universität der Bundeswehr München, Economic Research Group.
    3. Buchanan, James M. & Yoon, Yong J., 2004. "Majoritarian exploitation of the fiscal commons: general taxes-differential transfers," European Journal of Political Economy, Elsevier, vol. 20(1), pages 73-90, March.
    4. Charles R. Hankla, 2013. "Fragmented Legislatures and the Budget: Analyzing Presidential Democracies," Economics and Politics, Wiley Blackwell, vol. 25(2), pages 200-228, 07.
    5. Juan Carlos Echeverry & Jorge Alexander Bonilla & Andrés Moya, 2006. "Rigideces Institucionales y Flexibilidad Presupuestaria: Origen, Motivación y Efectos sobre el Presupuesto," IDB Publications 9091, Inter-American Development Bank.

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