Debts and Deficits with Fragmented Fiscal Policymaking
AbstractThis 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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Date of creation: Nov 1997
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Find related papers by JEL classification:
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
- H6 - Public Economics - - National Budget, Deficit, and Debt
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