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The Political Economy of Fiscal Policy: Survey

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  • Marcela Eslava

Abstract

This paper surveys the recent literature on the political economy of fiscal policy, in particular the accumulation of government debt. We examine three possible determinants of fiscal balances: opportunistic behavior by policymakers, heterogeneous fiscal preferences of either voters or politicians, and budget institutions. We focus on the contributions of the last 10 years and emphasize findings related to developing countries. We include a recent body of literature on the fiscal preferences of voters, which, interestingly, seems to suggest that voters do not favor high-spending governments. We also report some original empirical evidence. First, we test different hypotheses from the political economy literature in a simultaneous manner for a large set of both developed and developing countries. We find that less-fragmented governments and a greater ability of voters to monitor fiscal policy are related to lower deficits; the estimated effects are larger than when the two hypotheses are evaluated separately, as the existing literature does. Second, we suggest the role of the courts in the determination of fiscal policy as a promising new avenue of research, and present some suggestive novel evidence on the importance of this channel.

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  • Marcela Eslava, 2006. "The Political Economy of Fiscal Policy: Survey," Research Department Publications 4487, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:4487
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    Cited by:

    1. Ruiz del Castillo, Ramiro & Cetrángolo, Oscar & Jiménez, Juan Pablo, 2010. "Rigidities and fiscal space in Latin America: a comparative case study," Macroeconomía del Desarrollo 97, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    2. Hallerberg, Mark & Scartascini, Carlos, 2017. "Explaining changes in tax burdens in Latin America: Do politics trump economics?," European Journal of Political Economy, Elsevier, vol. 48(C), pages 162-179.
    3. Chowdhury, Anis, 2008. "Growth Oriented Macroeconomic Policies for Small Islands Economies: Lessons from Singapore," WIDER Working Paper Series 047, World Institute for Development Economic Research (UNU-WIDER).
    4. Lopez Uribe, Maria del Pilar, 2013. "Roads or Schools? Political Budget Cycles with different types of voters," MPRA Paper 50529, University Library of Munich, Germany.
    5. Lora, Eduardo, 2008. "El futuro de los pactos fiscales en América Latina," Coediciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1310, March.
    6. Mark Hallerberg & Carlos Scartascini, 2015. "Explaining Changes in Tax Burdens in Latin America: Does Politics Trump Economics?," IDB Publications (Working Papers) 90997, Inter-American Development Bank.
    7. Massimo Antonini & Kevin Lee & Jacinta Pires, "undated". "Public Sector Debt Dynamics: The Persistence and Sources of Shocks to Debt in Ten EU Countries," Discussion Papers 11/08, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    8. Gupta, Sanjeev & Liu, Estelle X. & Mulas-Granados, Carlos, 2016. "Now or later? The political economy of public investment in democracies," European Journal of Political Economy, Elsevier, vol. 45(C), pages 101-114.
    9. Arezki, Rabah & Ismail, Kareem, 2013. "Boom–bust cycle, asymmetrical fiscal response and the Dutch disease," Journal of Development Economics, Elsevier, vol. 101(C), pages 256-267.
    10. Hayo, Bernd & Neumeier, Florian, 2014. "Political leaders' socioeconomic background and fiscal performance in Germany," European Journal of Political Economy, Elsevier, vol. 34(C), pages 184-205.
    11. Jaroslaw Kantorowicz, 2014. "Judges as Fiscal Activists: Can Constitutional Review Shape Public Finance?," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 2, pages 79-104, June.
    12. Marcus Melo & Carlos Pereira & Saulo Souza, 2010. "The Political Economy of Fiscal Reform in Brazil: The Rationale for the Suboptimal Equilibrum," Research Department Publications 4655, Inter-American Development Bank, Research Department.
    13. Marcela Eslava & Oskar Nupia, 2010. "Political Fragmentation and Government Spending: Bringing Ideological Polarization into the Picture," DOCUMENTOS CEDE 006713, UNIVERSIDAD DE LOS ANDES-CEDE.
    14. Konstantakis, Konstantinos N. & Michaelides, Panayotis G., 2014. "Transmission of the debt crisis: From EU15 to USA or vice versa? A GVAR approach," Journal of Economics and Business, Elsevier, vol. 76(C), pages 115-132.
    15. Mark P. Jones & Osvaldo Meloni & Mariano Tommasi, 2012. "Voters as Fiscal Liberals: Incentives and Accountability in Federal Systems," Economics and Politics, Wiley Blackwell, vol. 24(2), pages 135-156, July.
    16. Meloni, Osvaldo, 2012. "Is there an electoral-motivated crime rate cycle? Evidence from Argentina," MPRA Paper 40177, University Library of Munich, Germany.
    17. Sebastián Nieto Parra & Javier Santiso, 2008. "Wall Street and Elections in Latin American Emerging Economies," OECD Development Centre Working Papers 272, OECD Publishing.
    18. Asfaha, Samuel, 2007. "National Revenue Funds: Their Efficacy for Fiscal Stability and Intergenerational Equity," MPRA Paper 7656, University Library of Munich, Germany.
    19. Jamshed Y. Uppal, 2011. "Government Budget Deficits and the Development of the Bond Market in Pakistan: Issues and Challenges," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 159-198, September.

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