Government Saving with Limited Commitment
AbstractThis paper builds a continuous time model of government saving behavior. The model features rulers that rotate out of power. The ruler makes two decisions: a. total spending expenditure; and b. the composition of spending between two goods, one with public benefits and another with private benefits for the ruling government ("pork spending"). We assume that preferences are such that pork spending rises with total spending but that the fraction spent on pork falls with rising total spending. In equilibrium, for intermediate values of the interest rate, government debt dynamics are affected by initial conditions: above a certain level of debt there is overspending so that debt remains high in a "poverty trap"; below this threshold, debt falls and the government eventually accumulates assets.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 110.
Date of creation: 2012
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-11 (All new papers)
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