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The Political Economy of Fiscal Policy: An Experimental Study on the Strategic Use of Deficits

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  • Sutter, Matthias

Abstract

Field data on the strategic use of deficits to limit the budgetary scope of future governments are inconclusive about the effects of political polarization or a government's re-election probability on fiscal policy. Therefore, we designed a controlled experiment to examine the strategic use of deficits. Using a within-subjects design, we find that deficits rise with a higher degree of polarization and a lower reelection probability. However, in a between-subjects design neither polarization nor reelection probabilities have a systematic effect. We discuss the implications of our experimental results for empirical tests of the strategic use of deficits with field data. Copyright 2003 by Kluwer Academic Publishers

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  • Sutter, Matthias, 2003. "The Political Economy of Fiscal Policy: An Experimental Study on the Strategic Use of Deficits," Public Choice, Springer, vol. 116(3-4), pages 313-332, September.
  • Handle: RePEc:kap:pubcho:v:116:y:2003:i:3-4:p:313-32
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    Cited by:

    1. Eduardo Borensztein & Ugo Panizza, 2009. "The Costs of Sovereign Default," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 683-741, November.
    2. Marcela Eslava, 2011. "The Political Economy Of Fiscal Deficits: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 645-673, September.
    3. Marcela Eslava, 2006. "The Political Economy of Fiscal Policy: Survey," Research Department Publications 4487, Inter-American Development Bank, Research Department.
    4. Bizer, Kilian & Henger, Ralph & Meub, Lukas & Proeger, Till, 2014. "The political economy of certificates for land use in Germany: Experimental evidence," Center for European, Governance and Economic Development Research Discussion Papers 225, University of Goettingen, Department of Economics.
    5. Huber, Gerald & Kocher, Martin & Sutter, Matthias, 2003. "Government Strength, Power Dispersion in Governments and Budget Deficits in OECD-Countries: A Voting Power Approach," Public Choice, Springer, vol. 116(3-4), pages 333-350, September.
    6. John Ashworth & Benny Geys & Bruno Heyndels, 2005. "Government Weakness and Local Public Debt Development in Flemish Municipalities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 395-422, August.
    7. Alberto Alesina & Andrea Passalacqua, 2015. "The Political Economy of Government Debt," NBER Working Papers 21821, National Bureau of Economic Research, Inc.
    8. Beate Jochimsen & Robert Lehmann, 2017. "On the political economy of national tax revenue forecasts: evidence from OECD countries," Public Choice, Springer, vol. 170(3), pages 211-230, March.
    9. Marcela Eslava & Oskar Nupia, 2010. "Political Fragmentation and Government Spending: Bringing Ideological Polarization into the Picture," DOCUMENTOS CEDE 006713, UNIVERSIDAD DE LOS ANDES-CEDE.
    10. Yesim Kustepeli & Gülcan Önel, 2005. "The Effects of Political Fragmentation on Fiscal Deficits in Turkey," Discussion Paper Series 05/02, Dokuz Eylül University, Faculty of Business, Department of Economics, revised 23 Nov 2005.
    11. Christoph March & Robert K. von Weizsäcker, 2016. "Coordinating Intergenerational Redistribution and the Repayment of Public Debt," CESifo Working Paper Series 6075, CESifo Group Munich.

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