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The Political Economy of Budget Deficits

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  • Alberto Alesina
  • Roberto Perotti

Abstract

This paper provides a critical survey of the literature on politico-institutional determinants of the government budget. We organize our discussion around two questions: Why did certain OECD countries, but not others, accumulate large public debts? Why did these fiscal imbalances appear in the last twenty years rather than before? We begin by discussing the 'tax smoothing' model and conclude that this approach alone cannot provide complete answers to these questions. We will then proceed to a discussion of political economy models, which we organize in six groups: i) Models based upon opportunistic policy makers and naive voters with 'fiscal illusion'; ii) Models of intergenerational redistributions; iii) Models of debt as a strategic variable, linking the current government with the next one; iv) Models of coalition governments; v) Models of geographically dispersed interests; vi) Models emphasizing the effects of budgetary institutions.

Suggested Citation

  • Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4637
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    References listed on IDEAS

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    1. Alberto Alesina & Gerald D. Cohen & Nouriel Roubini, 1991. "Macroeconomic Policy and Elections in OECD Democracies," NBER Working Papers 3830, National Bureau of Economic Research, Inc.
    2. repec:cup:apsrev:v:83:y:1989:i:04:p:1181-1206_08 is not listed on IDEAS
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    13. G Milesi-Feretti, 1993. "The Disadvantage of Tying Their Hands: On the Political Economy of Policy Commitments," CEP Discussion Papers dp0125, Centre for Economic Performance, LSE.
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    29. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
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