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The political economy of fiscal deficits and government production

  • Gisle James Natvik

    ()

    (Norges Bank (Central Bank of Norway))

This paper analyzes a framework where policymakers decide how to spend public resources on physical capital and labor in order to produce two public goods. Candidate policymakers disagree about which goods to produce, and may alternate in office due to elections. When capital and labor are complementary inputs to the production of public goods, the anticipation of political turnover reduces public savings in physical capital rather than finnancial assets. Political turnover renders the stock of physical capital for public production too low and ine¢ ciently combined with labor.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2009/WP20097/
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Paper provided by Norges Bank in its series Working Paper with number 2009/07.

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Length: 47 pages
Date of creation: 30 Mar 2009
Date of revision:
Handle: RePEc:bno:worpap:2009_07
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  1. Glazer, Amihai, 1989. "Politics and the Choice of Durability," American Economic Review, American Economic Association, vol. 79(5), pages 1207-13, December.
  2. Marco Bassetto & Thomas J. Sargent, 2005. "Politics and efficiency of separating capital and ordinary Government budgets," Working Paper Series WP-05-07, Federal Reserve Bank of Chicago.
  3. Guido Tabellini & Alberto Alesina, 1988. "Voting on the Budget Deficit," UCLA Economics Working Papers 539, UCLA Department of Economics.
  4. Gisle James Natvik, 2009. "The political economy of fiscal deficits and government production," Working Paper 2009/07, Norges Bank.
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  11. Julia Darby & Chol-Won Li & Anton Muscatelli, 2000. "Political Uncertainty, Public Expenditure and Growth," CESifo Working Paper Series 310, CESifo Group Munich.
  12. Marina Azzimonti-Renzo, 2011. "The dynamics of public investment under persistent electoral advantage," Working Papers 11-23, Federal Reserve Bank of Philadelphia.
  13. Luisa Lambertini, 2003. "Are Budget Deficits Used Strategically?," Boston College Working Papers in Economics 578, Boston College Department of Economics.
  14. Roel M.W.J. Beetsma & Frederick van der Ploeg, 2007. "Partisan Public Investment and Debt: The Case for Fiscal Restrictions," Economics Working Papers ECO2007/37, European University Institute.
  15. Alberto Alesina & Guido Tabellini, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 403-414.
  16. Drazen, Allan & Eslava, Marcela, 2010. "Electoral manipulation via voter-friendly spending: Theory and evidence," Journal of Development Economics, Elsevier, vol. 92(1), pages 39-52, May.
  17. Robert A. J. Dur & Ben D. Peletier & Otto H. Swank, 1999. "Voting on the Budget Deficit: Comment," American Economic Review, American Economic Association, vol. 89(5), pages 1377-1381, December.
  18. Marina Azzimonti, 2014. "Online Appendix to "The dynamics of public investment under persistent electoral advantage"," Technical Appendices 12-228, Review of Economic Dynamics.
  19. Blanchard, Olivier J & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers 4220, C.E.P.R. Discussion Papers.
  20. William Watkins & Henning Bohn, 2011. "Precommitted Government Spending and Partisan Politics," CESifo Working Paper Series 3462, CESifo Group Munich.
  21. Rainer Klump & Peter McAdam & Alpo Willman, 2007. "Factor Substitution and Factor-Augmenting Technical Progress in the United States: A Normalized Supply-Side System Approach," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 183-192, February.
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