Starving the Leviathan: a dynamic analysis of Balanced Budget Rules
This paper analyzes the case for using Balanced Budget Rules to rein in fiscally irresponsible governments. Underlying the analysis is the political economy model of Battaglini and Coate (2008) which predicts inefficiently high equilibrium debt levels. The paper shows that imposing a BBR will reduce debt and lead to lower average taxes and higher average public spending levels. In the short run, citizens will be worse off as public spending is reduced and taxes are raised to bring down debt. In the long run, the benefits of lower average taxes and higher average public spending must be weighed against greater volatility in taxes and less responsiveness to public good needs. To quantify the trade offs involved, the model is calibrated to the U.S. economy and the impact of a BBR is simulated. While average debt levels are reduced by 46% and long run welfare is increased by 1.72%, imposing a BBR at current debt levels will reduce citizens' welfare.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||2008|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:red:sed008:539. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.