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The political economy of fiscal deficits and government production

Listed author(s):
  • 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
Handle: RePEc:bno:worpap:2009_07
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  1. Julia Darby & Chol-Won Li & Anton Muscatelli, 2000. "Political Uncertainty, Public Expenditure and Growth," CESifo Working Paper Series 310, CESifo Group Munich.
  2. Alberto Alesina & Guido Tabellini, 1988. "Voting on the Budget Deficit," NBER Working Papers 2759, National Bureau of Economic Research, Inc.
  3. Marina Azzimonti-Renzo, 2013. "The dynamics of public investment under persistent electoral advantage," Working Papers 13-43, Federal Reserve Bank of Philadelphia.
  4. William Watkins & Henning Bohn, 2011. "Precommitted Government Spending and Partisan Politics," CESifo Working Paper Series 3462, CESifo Group Munich.
  5. Jinhui Bai & Roger Lagunoff, 2008. "On the 'Faustian' Dynamics of Policy and Political Power," Working Papers gueconwpa~08-08-02, Georgetown University, Department of Economics.
  6. Stephen Coate & Marco Battaglini, 2005. "Inefficiency in Legislative Policy-Making: A Dynamic Analysis," 2005 Meeting Papers 209, Society for Economic Dynamics.
  7. Marina Azzimonti, 2009. "Barriers to investment in polarized societies," 2009 Meeting Papers 1233, Society for Economic Dynamics.
  8. Luisa Lambertini, 2003. "Are Budget Deficits Used Strategically?," Boston College Working Papers in Economics 578, Boston College Department of Economics.
  9. Rafael La Porta & Florencio López-de-Silanes, 1997. "The Benefits of Privatization : Evidence from Mexico," World Bank Other Operational Studies 11583, The World Bank.
  10. Lindbeck, Assar & Weibull, Jorgen W., 1993. "A model of political equilibrium in a representative democracy," Journal of Public Economics, Elsevier, vol. 51(2), pages 195-209, June.
  11. 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.
  12. Marco Bassetto & Thomas Sargent, 2005. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," NBER Working Papers 11030, National Bureau of Economic Research, Inc.
  13. Marina Azzimonti, 2014. "Online Appendix to "The dynamics of public investment under persistent electoral advantage"," Technical Appendices 12-228, Review of Economic Dynamics.
  14. 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.
  15. 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.
  16. 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.
  17. Natvik, Gisle J., 2013. "The political economy of fiscal deficits and government production," European Economic Review, Elsevier, vol. 58(C), pages 81-94.
  18. 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.
  19. Glazer, Amihai, 1989. "Politics and the Choice of Durability," American Economic Review, American Economic Association, vol. 79(5), pages 1207-1213, December.
  20. Besley, Timothy & Coate, Stephen, 1998. "Sources of Inefficiency in a Representative Democracy: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 88(1), pages 139-156, March.
  21. 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.
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