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Debts and Deficits with Fragmented Fiscal Policymaking

  • Andres Velasco
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    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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    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
    Date of revision:
    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
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