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Rent seeing distortions and fiscal procyclicality

  • Ilzetzki, Ethan

Recent research has demonstrated that while government expenditures are countercyclical in most industrialized countries, they tend to be procyclical in developing countries. We develop a dynamic political-economy model to explain this phenomenon. Simulations of the model allow us to quantitatively compare the relative role of common explanations for fiscal procyclicality. We conclude that rent seeking within the fiscal process can explain fiscal procyclicality better than other common explanations, such as borrowing constraints and macroeconomic volatility.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8726.

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Date of creation: 30 Apr 2006
Date of revision: 01 Dec 2007
Handle: RePEc:pra:mprapa:8726
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