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Taxing deficits to restrain government spending and foster capital accumulation

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Author Info
Stähler, Nikolai

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Abstract

In a dynamic model of fiscal policy, social polarization provokes a deficit bias. Policy advisors have recently proposed that governments running a deficit should be forced to generate additional tax revenue. We show that this deficit taxation reduces the deficit bias as it internalizes the externality different lobby groups impose on others. The mechanism described here is not due to the political risk of being elected out of office because the private sector dislikes taxation. Lower government spending and the resulting reduced deficit bias augment capital accumulation. --

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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2007,26.

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Date of creation: 2007
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Handle: RePEc:zbw:bubdp1:6342

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Related research
Keywords: fiscal rules; deficit taxation; polarization; capital accumulation;

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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References listed on IDEAS
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  3. Malte Krüger & Florian Morath, 2007. "“Burden of Debt” in HIPC Countries in the Light of Current Account Statistics," Intereconomics: Review of European Economic Policy, Springer, vol. 42(2), pages 105-108, March. [Downloadable!] (restricted)
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  5. Krogstrup, Signe & Wyplosz, Charles, 2006. "A Common Pool Theory of Deficit Bias Correction," CEPR Discussion Papers 5866, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Isabelle Joumard & Per Mathis Kongsrud, 2003. "Fiscal Relations across Government Levels," OECD Economics Department Working Papers 375, OECD, Economics Department. [Downloadable!]
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  10. Fearon, James D, 2003. " Ethnic and Cultural Diversity by Country," Journal of Economic Growth, Springer, vol. 8(2), pages 195-222, June. [Downloadable!] (restricted)
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  14. Alesina, Alberto & Baqir, Reza & Easterly, William, 1999. "Public goods and ethnic divisions," Policy Research Working Paper Series 2108, The World Bank. [Downloadable!]
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  15. Mark Hallerberg & Jurgen von Hagen, 1997. "Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union," NBER Working Papers 6341, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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(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. Plachta, Robert, 2008. "Fiscal Equalisation and the Soft Budget Constraint," FiFo-CPE Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 08-8, University of Cologne, CPE - Cologne Center for Public Economics. [Downloadable!]
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