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A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms

  • 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. " First, fiscal deficits and debt accumulation occur even when there are no reasons for intertemporal smoothing. Second deficits can be eliminated through a fiscal reform, but such a reform may only take place after a" delay during which government debt is built up.

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    File URL: http://www.nber.org/papers/w6336.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6336.

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    Date of creation: Dec 1997
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    Publication status: published as Fiscal Institutions and Fiscal Performance. Poterba, James M., and Jurgen von Hagen, eds., Chicago: The University of Chicago Press, 1999,pp. 37-57.
    Handle: RePEc:nbr:nberwo:6336
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