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Four Budget Deficit Theories in One Model

  • Jens Peter Siebel
  • Athanassios Pitsoulis
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    The analysis of many budget deficit theories is too demanding for undergraduate students. This paper illustrates governments' incentives to create budget deficits by means of a simple graphical model. It integrates four budget deficit theories: The theory of the state as Leviathan, two different strategic deficit theories, and the theory of tax competition. These theories are embedded into an illustrative example of political competition between a conservative party and a liberal party. The main pedagogical benefits of the model are its intuitive setup and its waiver of demanding analysis.

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    Article provided by Middle Tennessee State University, Business and Economic Research Center in its journal Journal for Economic Educators.

    Volume (Year): 11 (2011)
    Issue (Month): 2 (Fall)
    Pages: 25-32

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    Handle: RePEc:mts:jrnlee:v:11:y:2011:i:2:p:25-32
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    1. Lockwood, Ben & Philippopoulos, Apostolis & Snell, Andy, 1996. "Fiscal Policy, Public Debt Stabilisation and Politics: Theory and UK Evidence," Economic Journal, Royal Economic Society, vol. 106(437), pages 894-911, July.
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