Why are Stabilizations Delayed? / Alberto Alesina, Allan Drazen.

Format:

Book

Author/Creator:

Alesina, Alberto.

Contributor:

National Bureau of Economic Research.

Drazen, Allan.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3053.

NBER working paper series no. w3053

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1989.

Summary:

When a stabilization has significant distributional implications (as in the case of tax increases to eliminate a large budget deficit) different socio-economic groups will attempt to shift the burden of stabilization onto other groups. The process leading to a stabilization becomes a "war of attrition", with each group finding it rational to attempt to wait the others out. Stabilization occurs only when one group concedes and is forced to bear a disproportionate share of the burden of fiscal adjustment. We solve for the expected time of stabilization in a model of "rational" delay based on a war of attrition and present comparative statics results relating the expected time of stabilization to several political and economic variables. We also motivate this approach and its results by comparison to historical episodes.

Notes:

Print version record

August 1989.