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Commitment, Deficit Ceiling, and Fiscal Privilege

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  • Toshihiro Ihori

    (Faculty of Economics, The University of Tokyo)

Abstract

　　 This study analyzes how commitment to a deficit ceiling can affect private agents' political efforts, as well as overall welfare, in a hard and a soft budget regime, using a two-period model simulating a present and a future generation and a government. In the hard budget regime, the government imposes the deficit ceiling before the present-generation's interest group decides the quantity of personal fiscal privileges. Since in the soft budget regime the government cannot commit itself to the deficit ceiling ex ante, the present generation exerts intense political efforts for personal fiscal privileges. We explore the interesting possibility that the soft budget regime leads to an overall welfare reduction for both generations, and hence, the commitment to a deficit ceiling benefits even rent-seeking private agents.

Suggested Citation

  • Toshihiro Ihori, 2014. "Commitment, Deficit Ceiling, and Fiscal Privilege," CIRJE F-Series CIRJE-F-920, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2014cf920
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    References listed on IDEAS

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    1. Ihori, Toshihiro & Itaya, Jun-ichi, 2001. "A dynamic model of fiscal reconstruction," European Journal of Political Economy, Elsevier, vol. 17(4), pages 779-797, November.
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    Cited by:

    1. Toshihiro Ihori, 2015. "Flexibility of Deficit Ceiling and Income Fluctuation," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 11(2), pages 231-246, March.

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