Soft Budget Constraints, Taxes, and the Incentive to Cooperate
This paper applies the tacit coordination framework to the political macroeconomic context. The macroeconomic equilibrium is the outcome of an administration, consisting of a large number of decisionmakers whose horizon, being endogenously determined by their behavior, is uncertain. The public imposes a degree of discipline on the policymakers by its option to replace the administration and the administration imposes discipline on the policymakers by monitoring their effective expenditure. Adverse shocks or a shorter horizon are shown to reduce cooperation among policymakers and increase the inflation rate and the use of discretionary taxes. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 34 (1993)
Issue (Month): 4 (November)
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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.:
- Buiter,Willem H. & Marston,Richard C., 1986.
"International Economic Policy Coordination,"
Cambridge University Press, number 9780521337809, December.
- Kornai, Janos, 1986. "The Hungarian Reform Process: Visions, Hopes, and Reality," Journal of Economic Literature, American Economic Association, vol. 24(4), pages 1687-1737, December.
- Aizenman, Joshua, 1992. "Competitive Externalities and the Optimal Seigniorage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 61-71, February.
- Alex Cukierman & Sebastian Edwards & Guido Tabellini, 1989.
"Seigniorage and Political Instability,"
NBER Working Papers
3199, National Bureau of Economic Research, Inc.
- Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
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