A Positive Theory of Fiscal Deficits and Government Debt in a Democracy
This paper considers an economy in which policymakers with different preferences concerning fiscal policy alternate in office as a result of democratic elections. It is shown that in this situation government debt becomes a strategic variable used by each policymaker to influence the choices of his successors. In particular, if different policymakers disagree about the desired composition of government spending between two public goods, the economy exhibits a deficits bias. Namely, in this economy debt accumulation is higher than it would be with a social planner. According to the results of our model, the equilibrium level of government debt is larger: the larger is the degree of polarization between alternating governments; and the more likely it is that the current government will not be reelected. The paper has empirical implications which may contribute to explain the current fiscal policies in the United States and in several other countries.
(This abstract was borrowed from another version of this item.)
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.:
- Cukierman, Alex & Meltzer, Allan H, 1989. "A Political Theory of Government Debt and Deficits in a Neo-Ricardian Framework," American Economic Review, American Economic Association, vol. 79(4), pages 713-732, September.
- Barro, Robert J., 1979.
"On the Determination of the Public Debt,"
3451400, Harvard University Department of Economics.
- Lucas, Robert Jr. & Stokey, Nancy L., 1983.
"Optimal fiscal and monetary policy in an economy without capital,"
Journal of Monetary Economics,
Elsevier, vol. 12(1), pages 55-93.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Lindbeck, Assar, 1985. "Redistribution policy and the expansion of the public sector," Journal of Public Economics, Elsevier, vol. 28(3), pages 309-328, December.
- Karl Brunner, 1978. "Reflections on the Political Economy of Government. The Persistent Growth of Government," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 114(III), pages 649-680, September.
- Persson, Torsten & Svensson, Lars E. O., 1984. "Time-consistent fiscal policy and government cash-flow," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 365-374, November.
- Turnovsky, Stephen J. & Brock, William A., 1980. "Time consistency and optimal government policies in perfect foresight equilibrium," Journal of Public Economics, Elsevier, vol. 13(2), pages 183-212, April.
- Brennan,Geoffrey & Buchanan,James M., 2006.
"The Power to Tax,"
Cambridge University Press, number 9780521027922, December.
- Gary S. Becker, 1984.
"Public Policies, Pressure Groups, and Dead Weight Costs,"
University of Chicago - George G. Stigler Center for Study of Economy and State
35, Chicago - Center for Study of Economy and State.
- Becker, Gary S., 1985. "Public policies, pressure groups, and dead weight costs," Journal of Public Economics, Elsevier, vol. 28(3), pages 329-347, December.
- Rogers, Carol Ann, 1986. "The effect of distributive goals on the time inconsistency of optimal taxes," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 251-269, March.
- Lucas, Robert Jr., 1986. "Principles of fiscal and monetary policy," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 117-134, January.
- Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
- Herschel I. Grossman & John B. Van Huyck, 1985.
"Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation,"
NBER Working Papers
1673, National Bureau of Economic Research, Inc.
- Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, vol. 78(5), pages 1088-1097, December.
When requesting a correction, please mention this item's handle: RePEc:cla:uclawp:435. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David K. Levine)
If references are entirely missing, you can add them using this form.