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Delay in Fiscal Reform

Author

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  • Kentaro Katayama

    (Policy Research Institute)

Abstract

This paper analyzes the political economy of delayed agreement over fiscal reforms, in a setting where two interest groups can bargain over the allocation of the cost of the stabilization. This contrasts with the classic contribution of Alesina and Drazen, who assume that a group which concedes earlier bears a fixed disproportionate share of the burden. The approach of this paper is to study an alternating offers model of bargaining in the economic environment of Alesina and Drazen i.e. where bargaining takes place in continuous time, and there is two-sided uncertainty. This allows a systematic comparison of expected delay in the bargaining game and in the concession game of Alesina and Drazen. When interest groups are sufficiently patient, or when shares in the concession game are very unequal, agreement is reached more quickly on average under bargaining. But, both games have the common feature that delay signals the toughness of the interest group.

Suggested Citation

  • Kentaro Katayama, 2008. "Delay in Fiscal Reform," Microeconomics Working Papers 23075, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:microe:23075
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    File URL: http://www.eaber.org/node/23075
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    References listed on IDEAS

    as
    1. Casella, Alessandra & Eichengreen, Barry, 1996. "Can Foreign Aid Accelerate Stabilisation?," Economic Journal, Royal Economic Society, vol. 106(436), pages 605-619, May.
    2. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
    3. Martinelli, Cesar & Escorza, Raul, 2007. "When are stabilizations delayed? Alesina-Drazen revisited," European Economic Review, Elsevier, vol. 51(5), pages 1223-1245, July.
    4. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659 Elsevier.
    5. Enrico Spolaore, 2004. "Adjustments in Different Government Systems," Economics and Politics, Wiley Blackwell, vol. 16(2), pages 117-146, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Strategic Delay; Stabilization; Bargaining; Coalition;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other

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