A Dynamic Theory of Public Spending, Taxation, and Debt
Top Cited Papers
Open Access
- 1 March 2008
- journal article
- Published by American Economic Association in American Economic Review
- Vol. 98 (1), 201-236
- https://doi.org/10.1257/aer.98.1.201
Abstract
This paper presents a political economy theory of fiscal policy. Policy choices are made by a legislature that can raise revenues via an income tax and by borrowing. Revenues can be used to finance a public good, whose value is stochastic, and pork-barrel spending. Policymaking cycles between a "business- as-usual" regime in which legislators bargain over pork, and a "responsible policymaking" regime in which policies maximize the collective good. Transitions between regimes are brought about by shocks in the value of the public good. Equilibrium tax rates are too high, public good provision is too low, and debt levels are too high. (JEL D72, E62, H20, H50, H60)Keywords
Other Versions
This publication has 44 references indexed in Scilit:
- Politicians, Taxes, and DebtSSRN Electronic Journal, 2008
- Bargaining in Legislatures over Particularistic and Collective GoodsAmerican Political Science Review, 2007
- Politics and Efficiency of Separating Capital and Ordinary Government Budgets*The Quarterly Journal of Economics, 2006
- Behavioral Identification in Coalitional Bargaining: An Experimental Analysis of Demand Bargaining and Alternating OffersEconometrica, 2005
- The Behavior of U. S. Public Debt and DeficitsThe Quarterly Journal of Economics, 1998
- Politically Motivated Fiscal Deficits: Policy Issues in Closed and Open EconomiesEconomics & Politics, 1997
- Balanced-budget rules and public deficits: evidence from the U.S. statesCarnegie-Rochester Conference Series on Public Policy, 1996
- Government domestic debt and the risk of default: a political–economic model of the strategic role of debtPublished by Cambridge University Press (CUP) ,1990
- Finite Rationality and Interpersonal Complexity in Repeated GamesEconometrica, 1988
- U.S. Deficits Since World War IThe Scandinavian Journal of Economics, 1986