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A Common Pool Theory of Deficit Bias Correction

  • Krogstrup, Signe
  • Wyplosz, Charles

The budget deficit bias is modeled as the result of a domestic common pool problem and of an international externality. Along with Piguvian taxes, a number of policy measures are examined and welfare-ranked: deficit ceilings, golden rules and delegation. In general, the combination of delegation and an optimally-set deficit ceiling deliver the social optimum, even if the deficit ceiling is not credible.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5866.

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Date of creation: Oct 2006
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Handle: RePEc:cpr:ceprdp:5866
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