Additionally, we find that in conjunction with fiscal strength, greater degrees of federalism positively affect intertemporal budget management. The political economy of international relations on jstor. This working paper should not be reported as representing the views of the imf. The political economy of budget deficits springerlink. The economic policy of the donald trump administration is characterized by individual and corporate tax cuts, attempts to repeal the patient protection and affordable care act obamacare, trade protectionism, immigration restriction, deregulation focused on the energy and financial sectors, and responses to the 2020 coronavirus pandemic a key part of president trumps economic strategy. Perotti also spent two weeks in the same department. The political economy of budget deficits by lori l. Political economy of fiscal deficits in a democracy. The political economy of budget deficits, staff papers international monetary fund, vol 421. This paper discusses the political economy of budget deficits among the brics nations between 1997 and 2016 using a panel cointegration approach to determine the longrun relationship between. According to the results of our model, the equilibrium level of government debt is larger.
The political economy of fiscal deficits and government. First, besides macroeconomic factors, the paper considers political economy factors in explaining the phenomenon of persistent fiscal deficits in india. Joe stilwell, a graduate of the wharton school of business, is an associate policy analyst of the cato. The political economy of budget deficits alberto alesina, roberto perotti. The political economy of budget deficits alberto alesina roberto perotti working paper no. Economic arguments alone are not sufficient to explain this behavior. How starve the beast policies feed the machine joseph daniel ura and erica m. Second, in the last five or six years the political economy literature has shown a renewed impetus. In the second stage to control for the potential endogeneity of economic political and institutional variables that may influence budget deficit volatility this study has also used the system.
A survey, journal of economic surveys on deepdyve, the largest online rental service for scholarly research with thousands of academic publications available at your fingertips. The political economy of budget tradeoffs volume 40 issue 1 christopher adolph, christian breunig, chris koski. The political economy of budget deficits by alberto f. I investigate the extent to which party alignment of governments and fiscal supervisors influences budget deficits. The political economy of the budget surplus in the united. A positive theory of fiscal deficits and government debt. The political economy of international relations book description. The motivation for this stems from the recent criticisms leveled against economists in the country due to the failure of most of the countrys macroeconomic policies. On the determination of the public debt, journal of political economy, university of. Even though many commentators have described this event as a rare. The first would be the opportunistic approach, according to which electoral incentives influence governments budget balance. Given the extensive discussion of deficit, the pros and cons of austerity policies in the us and europe, it is hard to believe that todays voters are unaware of the. On the determination of the public debt, journal of political economy, university of chicago press, vol. The data set includes 427 german local governments for the period 20002004.
The motivation for introducing such a rule is the desire to restrict deficit spending and limit increases in government debt. This paper analyzes the impact of a balanced budget rule that requires that legislators do not run deficits in the political economy model of battaglini and coate 2008. The field has developed and the literature has exploded on the basis of analyses of the transaction costs in the incentives, strategies, and choices of maximizing and strategic behaviour, within interconnected political and economic. It is seen that analyses on budget deficits are focused on various political behaviours. Field data on the strategic use of deficits to limit thebudgetary scope of future governments are inconclusive aboutthe effects of political polarization or a governmentsreelection probability on fiscal policy. Pdf this study has a major motivation to empirically find the fundamentals of budget deficit instability for the period 1984 to 2016 using. It also describes the impact of critical political economy factors like the onset of elections and government fragmentation on fiscal deficit. A long and growing list of apparent policy failures e. Political economy should not be confused with economic policy political economy is the study of production and trade and their relations with law, custom and government. The economic policy of the donald trump administration is characterized by individual and corporate tax cuts, attempts to repeal the patient protection and affordable care act obamacare, trade protectionism, immigration restriction, deregulation focused on the energy and financial sectors, and responses to the 2020 coronavirus pandemic. The original contributions in this book analyze all of the budgets components expenditures, revenues, the deficit with a special emphasis on issues that have assumed increasing importance over the last decade or so, such as. Similarly, if the economy begins at y 1 and an expansion occurs, then the budget surplus that results has a contractionary impact on the economy due to low government.
Political and economic determinants of budget deficits in the industrialdemocracies, nber working papers 2682, national bureau of economic research, inc. Promising avenues for future research are highlighted. Why did these fiscal imbalances appear in the last 20 years rather than before. Evidence clearly indicates that fiscal performance is better where fiscal budgeting institutions are strong. Even though many commentators have described this event as a rare and major success, what is remarkable is not that the u. Political economy theory expects politicians to use budget deficits to engineer an electiontimed boom, known as the political business cycle.
Pdf the political economy of budget deficits researchgate. The political economy of budget deficits, staff papers international monetary. Based on data covering 14 countries and 20 fiscal years 197897 we test the major hypotheses in the political economy literature. Using a withinsubjects design, we find thatdeficits rise with a higher degree of polarization. The political economy of budget deficits by alesina. Therefore, recent political economy literature emphasizes the role of political and institutional. The term applies to governments, although individuals, companies, and other organizations can run deficits. Alberto alesina and roberto perotti additional contact information alberto alesina.
National bureau of economic research this paper provides a critical survey of the literature on politicoinstitutional determinants of the government budget. The political economy of budget deficits ideasrepec. The analysis carried out so far in this study has been geared towards the investigation of the political economy of fiscal deficits in a democracy using nigeria as a case study. Persistent fiscal deficits and political economy transitions. It also covers contributions that highlight the crucial role of budget institutions in determining the extent to which the political motivations to generate deficits are indeed translated into poor fiscal outcomes. Sep 14, 2007 rankings are related to theories regarding the political economy of budget deficits. The political economy of budget deficits by alesina alberto and perotti roberto this paper provides a critical survey of the literature on politicoinstitutional determinants of the government budget. Namely, in this economy debt accumulation is higher than it would be with a social planner. The political economy of budget tradeoffs volume 40 issue 1 christopher adolph, christian breunig, chris koski skip to main content accessibility help we use cookies to distinguish you from other users and to provide you with a better experience on our websites. The effect of deficits on intragovernmental debt is less certain than their contribution to debt held by the public. The government is a benevolent social planner that maximizes the utility of the representative agent. Why did these fiscal imbalances appear in the last twenty years rather than sooner.
Theories of government budget deficits and debt principles. No 4637, nber working papers from national bureau of economic research, inc abstract. The political economy of budget tradeoffs journal of. This paper provides a critical survey of the literature on politico institutional determinants of the government budget. Budget deficits are the principal contributor to debt held by the public.
The original contributions in this book analyze all of the budget s components expenditures, revenues, the deficit with a special emphasis on issues that have assumed increasing importance over the last decade or so, such as. The political economy of the budget surplus in the united states alberto alesina n 1998, the federal government of the united states reached a budget surplus for the first time in 30 years. Therefore, wedesigned a controlled experiment to examine the strategic useof deficits. Because budget deficits have an expansionary impact on the economy due to high government spending relative to tax revenues, the economy has an automatic tendency to expand. Apr 05, 2020 kimberly amadeo has 20 years of experience in economic analysis and business strategy. The political economy of balanced budget amendments a. Rankings are related to theories regarding the political economy of budget deficits. It is not easy for a country to minimize its budget deficit with a small economy which suffers from isolations. Optimal budget policy the tax smoothing theory of the government budget considers a closed economy without capital in which a representative agent consumes, works, and saves. After the end of world war ii, the united states, by far the dominant economic and military power at that time, joined with the surviving capitalist democracies to create an unprecedented institutional framework.
The literature can be grouped into three approaches eslava, 2006. The political economy of budget deficits econpapers. Oct 22, 2007 rankings are related to theories regarding the political economy of budget deficits. Impact of governance on budget deficit in developing countries. They show that, after controlling for several economic determinants of budget deficits suggested by the tax smoothing model, their political variable is highly significant. The first would be the opportunistic approach, according to. The behavioral political economy of budget deficits. As a discipline, political economy originated in moral philosophy, in the 18th century, to explore the administration of states wealth. We begin by discussing the tax smoothing model and. Pdf 3 mb epub 959 kb the political economy of budget deficits explore other countries and regions get. The effects of a governments budget on society and the political economy are of considerable concern to economists as well as to consumers and taxpayers. Sep 01, 2011 read the political economy of fiscal deficits. As a discipline, political economy originated in moral philosophy, in the 18th century, to explore the administration of states wealth, with political signifying the greek word polity and economy signifying the greek word. The political economy of budget deficits in the european.
Monetary economics program, public economics program this paper provides a critical survey of the literature on politicoinstitutional determinants of the government budget. We challenge and contextualize this view by incorporating the financial constraints faced by governments into an electoral framework. Kimberly amadeo has 20 years of experience in economic analysis and business strategy. The political economy of government debt alberto alesinay harvard university and igier bocconi andrea passalacquaz harvard university first draft.
We begin by discussing the tax smoothing model and conclude that. Economic effects of the government budget the mit press. Socker abstract the notion of starving the beast has been an important justification for fiscal programs emphasizing revenue reductions since the mid1970s. The political economy of budget deficits ebook, 1994. Provides an overview of the political economy approach as it relates to the political economy of institutions and the political economy of public policy. There are always political discussions and few academic discussions for the solutions to budget deficit problem in north cyprus.
This paper provides a critical survey of the literature on politicoinstitutional determinants of the government budget. Leachman, guillermo rosas, peter lange, and alan bester in leachman et al. The political economy of balanced budget amendments by marina azzimonti balanced budget amendment is a constitutional rule requiring that the government collect enough revenue to finance its expenditures every year. Why did certain oecd countries, but not others, accumulate large public debts. The political economy of the budget surplus in the united states. The political economy of fiscal supervision and budget. Political economy is the study of production and trade and their relations with law, custom and government.
This article tries to evaluate the impact of domestic and international factors on both deficits and deficit reduction in the european union. We argue theoretically that the extent of ownership dispersion among creditors has important effects for governments. International monetary fund imf staff papers, 1995, vol. The views expressed in this working paper are those of the authors and do not necessarily represent those of the imf or imf. In many federal countries, local governments run large deficits, even when fiscal supervision by state authorities is tight. The political economy of unsustainable fiscal deficits scielo. The political economy of government debt harvard university. Monetary economics program, public economics program. Budget, debt, and deficits council on foreign relations.
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