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A Positive Theory of Fiscal Deficits and Government Debt in a Democracy

  • Alberto Alesina
  • Guido Tabellini

This paper considers an economy in which policymakers with different preferences concerning fiscal policy alternate in office as a result of democratic elections. It is shown that in this situation government debt becomes a strategic variable used by each policymaker to influence the choices of his successors. In particular, if different policymakers disagree about the desired composition of government spending between two public goods, the economy exhibits a deficits bias. Namely, in this economy debt accumulation is higher than it would be with a social planner. According to the results of our model, the equilibrium level of government debt is larger: the larger is the degree of polarization between alternating governments; and the more likely it is that the current government will not be reelected. The paper has empirical implications which may contribute to explain the current fiscal policies in the United States and in several other countries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2308.

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Date of creation: Jul 1987
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Publication status: published as "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, 57(3), July 1990: 403-414.
Handle: RePEc:nbr:nberwo:2308
Note: ME
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  1. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  2. Rogers, Carol Ann, 1986. "The effect of distributive goals on the time inconsistency of optimal taxes," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 251-269, March.
  3. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  4. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  5. Herschel I. Grossman & John B. Van Huyck, 1985. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," NBER Working Papers 1673, National Bureau of Economic Research, Inc.
  6. Lucas, Robert Jr., 1986. "Principles of fiscal and monetary policy," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 117-134, January.
  7. Gary S. Becker, 1984. "Public Policies, Pressure Groups, and Dead Weight Costs," University of Chicago - George G. Stigler Center for Study of Economy and State 35, Chicago - Center for Study of Economy and State.
  8. Cukierman, Alex & Meltzer, Allan H, 1989. "A Political Theory of Government Debt and Deficits in a Neo-Ricardian Framework," American Economic Review, American Economic Association, vol. 79(4), pages 713-32, September.
  9. Turnovsky, Stephen J. & Brock, William A., 1980. "Time consistency and optimal government policies in perfect foresight equilibrium," Journal of Public Economics, Elsevier, vol. 13(2), pages 183-212, April.
  10. repec:cup:cbooks:9780521027922 is not listed on IDEAS
  11. Lindbeck, Assar, 1985. "Redistribution policy and the expansion of the public sector," Journal of Public Economics, Elsevier, vol. 28(3), pages 309-328, December.
  12. Persson, Torsten & Svensson, Lars E. O., 1984. "Time-consistent fiscal policy and government cash-flow," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 365-374, November.
  13. Karl Brunner, 1978. "Reflections on the Political Economy of Government. The Persistent Growth of Government," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 114(III), pages 649-680, September.
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