The political economy of fiscal policy and inflation in developing countries : an empirical analysis
Most economists treat fiscal policy as exogenous and consider policymakers as machines to be programmed. Rarely do they seek to determine why, for instance, some countries rely on the inflation tax while others use direct taxation, let alone what political factors affect such decisions. Yet without a theory of how fiscal policymakers behave, at both the revenue and the expenditure levels, there is no guarantee that policy advice will turn out to be sound. The authors present the results of an empirical analysis of the political economy of fiscal policy for a group of developing countries. They look at alternative ways of incorporating political variables into the explanation of government policy actions. Dividing their results into three sections, one each for inflation, budget deficits, and devaluations, they find that: (a) the equilibrium inflation rate is higher the more citizens disagree about which party should hold office, and the more unlikely it is that the government currently in office will be reappointed; (b) political instability and polarization lead to a collective myopia that sometimes tempts policymakers to borrow too heavily and to leave the bills to their successors; and (c) governments tend to implement adjustment policies early in their tenure when they command political authority, but if political conflict arises, they may lack the strength to change the macroeconomic status quo and will resort instead to inflation and deficits.
|Date of creation:||30 Jun 1991|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Faig, Miquel, 1988. "Characterization of the optimal tax on money when it functions as a medium of exchange," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 137-148, July.
- Kimbrough, Kent P., 1986. "The optimum quantity of money rule in the theory of public finance," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 277-284, November.
- Morris Goldstein & Peter Montiel, 1986. "Evaluating Fund Stabilization Programs with Multicountry Data: Some Methodological Pitfalls (Evaluation des programmes de stabilisation du Fonds Ã partir de donnÃ©es sur divers pays: quelques Ã©cueils," IMF Staff Papers, Palgrave Macmillan, vol. 33(2), pages 304-344, June.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Alesina, A. & Drazen, A., 1991.
"Why Are Stabilizations Delayed?,"
6-91, Tel Aviv - the Sackler Institute of Economic Studies.
- Poterba, J.M. & Rotemberg, J.J., 1989.
"Inflation And Taxation With Optimizing Governments,"
521, Massachusetts Institute of Technology (MIT), Department of Economics.
- Poterba, James M & Rotemberg, Julio J, 1990. "Inflation and Taxation with Optimizing Governments," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 1-18, February.
- James M. Poterba & Julio J. Rotemberg, 1988. "Inflation And Taxation With Optimizing Governments," NBER Working Papers 2567, National Bureau of Economic Research, Inc.
- Mankiw, N. Gregory, 1987.
"The optimal collection of seigniorage : Theory and evidence,"
Journal of Monetary Economics,
Elsevier, vol. 20(2), pages 327-341, September.
- N. Gregory Mankiw, 1987. "The Optimal Collection of Seigniorage: Theory and Evidence," NBER Working Papers 2270, National Bureau of Economic Research, Inc.
- Joshua Aizenman, 1985. "Inflation, Tariffs and Tax Enforcement Costs," NBER Working Papers 1712, National Bureau of Economic Research, Inc.
- Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992.
"Seigniorage and Political Instability,"
American Economic Review,
American Economic Association, vol. 82(3), pages 537-55, June.
- Vito Tanzi, 1977. "Inflation, Lags in Collection, and the Real Value of Tax Revenue (L'inflation, les retards de recouvrement et la valeur rÃ©elle des recettes fiscales) (InflaciÃ³n, desfases en la recaudaciÃ³n y valor ," IMF Staff Papers, Palgrave Macmillan, vol. 24(1), pages 154-167, March.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:703. 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: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.