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A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms

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Andres Velasco
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. " First, fiscal deficits and debt accumulation occur even when there are no reasons for intertemporal smoothing. Second deficits can be eliminated through a fiscal reform, but such a reform may only take place after a" delay during which government debt is built up.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6336.

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Date of creation: Dec 1997
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Handle: RePEc:nbr:nberwo:6336

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Find related papers by JEL classification:
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
  5. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Barro, Robert J, 1986. " U.S. Deficits since World War I," Scandinavian Journal of Economics, Blackwell Publishing, vol. 88(1), pages 195-22.
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  10. Benhabib, Jess & Velasco, Andres, 1996. "On the optimal and best sustainable taxes in an open economy," European Economic Review, Elsevier, vol. 40(1), pages 135-154, January. [Downloadable!] (restricted)
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  16. Buiter, Willem H & Corsetti, Giancarlo & Roubini, Nouriel, 1992. "`Excessive Deficits': Sense and Nonsense in the Treaty of Maastricht," CEPR Discussion Papers 750, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  17. Alex Cukierman & Sebastian Edwards & Guido Tabellini, 1989. "Seigniorage and Political Instability," NBER Working Papers 3199, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Allan Drazen & Vittorio Grilli, 1990. "The Benefits of Crises for Economic Reforms," NBER Working Papers 3527, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-89, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Imbs, Jean & Ranciere, Romain, 2005. "The overhang hangover," Policy Research Working Paper Series 3673, The World Bank. [Downloadable!]
    Other versions:
  2. Toshihiro Ihori & Takero Doi & Hiroki Kondo, 2000. "Japanese Fiscal Reform: Fiscal Reconstruction and Fiscal Policy," CIRJE F-Series CIRJE-F-83, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
    Other versions:
  3. Ricardo Hausmann & Alberto Alesina & Rudolf Hommes & Ernesto H. Stein, 1998. "Budget Institutions and Fiscal Performance in Latin America," RES Working Papers 4160, Inter-American Development Bank, Research Department. [Downloadable!]
    Other versions:
  4. Ricardo Hausmann & Alberto Alesina & Rudolf Hommes & Ernesto H. Stein, 1998. "Instituciones presupuestarias y desempeño fiscal en América Latina," RES Working Papers 4161, Inter-American Development Bank, Research Department. [Downloadable!]
  5. Christian B. Mulder & Matthieu Bussiere, 1999. "Political Instability and Economic Vulnerability," IMF Working Papers 99/46, International Monetary Fund. [Downloadable!]
    Other versions:
  6. Guillermo J. Vuletin, 2004. "Exchange Rate Regimes And Fiscal Performance. Do Fixed Exchange Rate Regimes Generate More Discipline Than Flexible Ones?," Econometric Society 2004 North American Winter Meetings 474, Econometric Society. [Downloadable!]
  7. Baqir, Reza, 1999. "Districts, spillovers, and government overspending," Policy Research Working Paper Series 2192, The World Bank. [Downloadable!]
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