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Why Are Stabilizations Delayed?

  • Alesina, A.
  • Drazen, A.

When a stabilization has significant distributional implications (e.g., tax increases to eliminate a large budget deficit), socioeconomic groups may attempt to shift the burden of stabilization onto other groups. The process leading to stabilization becomes a "war of attrition," each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden. The authors solve for the expected time of stabilization in a model of "rational" delay and relate it to several political and economic variables. They motivate this approach and its results by comparison to historical and current episodes. Copyright 1991 by American Economic Association.

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Paper provided by Tel Aviv - the Sackler Institute of Economic Studies in its series Papers with number 6-91.

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Length: 44 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:fth:teavsa:6-91
Contact details of provider: Postal: Tel-Aviv University, The Sackler Institute of Economic Studies, Ramat Aviv 69 978 Tel-Aviv, Israel
Phone: +972-3-640-9715
Fax: +972-3-640-9908
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  1. Backus, David & Driffill, John, 1985. "Inflation and Reputation," American Economic Review, American Economic Association, vol. 75(3), pages 530-38, June.
  2. Nouriel Roubini & Jeffrey Sachs, 1988. "Political and Economic Determinants of Budget Deficits in the IndustrialDemocracies," NBER Working Papers 2682, National Bureau of Economic Research, Inc.
  3. Tabellini, Guido, 1986. "Money, debt and deficits in a dynamic game," Journal of Economic Dynamics and Control, Elsevier, vol. 10(4), pages 427-442, December.
  4. Eichengreen, Barry, 1989. "The Capital Levy in Theory and Practice," CEPR Discussion Papers 350, C.E.P.R. Discussion Papers.
  5. Andrew Berg & Jeffrey Sachs, 1988. "The Debt Crisis: Structural Explanations of Country Performance," NBER Working Papers 2607, National Bureau of Economic Research, Inc.
  6. Thomas J. Sargent, 1981. "The ends of four big inflations," Working Papers 158, Federal Reserve Bank of Minneapolis.
  7. Helpman, Elhanan & Leiderman, Leonardo, 1988. "Stabilization in high inflation countries: Analytical foundations and recent experience," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 28(1), pages 9-84, January.
  8. Barro, Robert J., 1986. "Reputation in a model of monetary policy with incomplete information," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 3-20, January.
  9. repec:tpr:qjecon:v:102:y:1987:i:4:p:835-55 is not listed on IDEAS
  10. Bliss, Christopher & Nalebuff, Barry, 1984. "Dragon-slaying and ballroom dancing: The private supply of a public good," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 1-12, November.
  11. Dornbusch, Rudiger, 1990. "Credibility and Stabilization," CEPR Discussion Papers 454, C.E.P.R. Discussion Papers.
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