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Debts and Deficits with Fragmented Fiscal Policymaking

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  • Andres Velasco
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    Abstract

    This paper develops a political-economic model of fiscal policy - one in which government resources are a common property' out of which interest groups can finance expenditures on their preferred items. This setup has striking macroeconomic implications. Transfers are higher than a benevolent planner would choose; fiscal deficits emerge even when there are no reasons for intertemporal smoothing, and in the long run government debt tends to be excessively high; peculiar time profiles for transfers can emerge, with high positive net transfers early on giving way to high taxes later on; and multiple dynamic equilibrium paths can occur starting at the same initial level of government debt.

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    File URL: http://www.nber.org/papers/w6286.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6286.

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    Date of creation: Nov 1997
    Publication status: published as Velasco, Andres. "Debts And Deficits With Fragmented Fiscal Policymaking," Journal of Public Economics, 2000, v76(1,Apr), 105-125.
    Handle: RePEc:nbr:nberwo:6286
    Note: PE
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    Keywords:

    Find related papers by JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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    1. Ernesto Stein & Ernesto Talvi & Alejandro Grisanti, 1999. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," NBER Chapters,in: Fiscal Institutions and Fiscal Performance, pages 103-134 National Bureau of Economic Research, Inc.
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    8. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-1231, December.
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    Cited by:

    1. Bernardo Bortolotti & Paolo Pinotti, 2008. "Delayed privatization," Public Choice, Springer, vol. 136(3), pages 331-351, September.
    2. Buchanan, James M. & Yoon, Yong J., 2004. "Majoritarian exploitation of the fiscal commons: general taxes-differential transfers," European Journal of Political Economy, Elsevier, vol. 20(1), pages 73-90, March.
    3. Sell, Friedrich L., 2003. "Die Stabilitätsprogramme der EU: Anspruch und Wirklichkeit in den ersten vier Jahren der Europäischen Währungsunion," Working Papers in Economics 2003,2, Universität der Bundeswehr München, Economic Research Group.
    4. Juan Carlos Echeverry & Jorge Alexander Bonilla & Andrés Moya, 2006. "Rigideces Institucionales y Flexibilidad Presupuestaria: Origen, Motivación y Efectos sobre el Presupuesto," IDB Publications (Working Papers) 9091, Inter-American Development Bank.
    5. Charles R. Hankla, 2013. "Fragmented Legislatures and the Budget: Analyzing Presidential Democracies," Economics and Politics, Wiley Blackwell, vol. 25(2), pages 200-228, 07.

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