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Politics and Deficit Finance

Author

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  • Holcombe, R.G.
  • Mills, J.A.

Abstract

The government faces both economic and political constraints on its ability to raise revenue. Political factors can limit the government's revenue-generating ability to levels below those dictated by economic constraints. Taxation is more directly constrained by the political process than deficit finance because taxes are voted on directly by the legislature. Deficits are a residual that results from the aggregation of all tax and expenditure bills. Increased electoral safety weakens the political constraint against deficit finance because the only electoral check on deficit finance occurs when representatives run for reelection. Empirical estimates show that the increased security of incumbents has contributed to increases in deficit finance and has increased the overall level of public expenditures.
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Suggested Citation

  • Holcombe, R.G. & Mills, J.A., 1992. "Politics and Deficit Finance," Working Papers 1992_03_1, Department of Economics, Florida State University.
  • Handle: RePEc:fsu:wpaper:1992_03_1
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    Cited by:

    1. Thomas A. Garrett & Andrew F. Kozak & Russell M. Rhine, 2010. "Institutions and government growth: a comparison of the 1890s and the 1930s," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 109-120.
    2. Randall Holcombe, 2005. "Government growth in the twenty-first century," Public Choice, Springer, vol. 124(1), pages 95-114, July.

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    Keywords

    political economy ; tax policy;

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