A Positive Theory of Fiscal Deficits and Government Debt in a Democracy / Alberto Alesina, Guido Tabellini.

Format:

Book

Author/Creator:

Alesina, Alberto.

Contributor:

National Bureau of Economic Research.

Tabellini, Guido.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2308.

NBER working paper series no. w2308

Language:

English

Subjects (All):

Debts, Public--Mathematical models.

Debts, Public.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1987.

Cambridge, Mass : National Bureau of Economic Research, 1987.

Summary:

This paper considers an economy in which policymakers with different preferences concerning fiscal policy alternate in office as a result of democratic elections. It is shown that in this situation government debt becomes a strategic variable used by each policymaker to influence the choices of his successors. In particular, if different policymakers disagree about the desired composition of government spending between two public goods, the economy exhibits a deficits bias. Namely, in this economy debt accumulation is higher than it would be with a social planner. According to the results of our model, the equilibrium level of government debt is larger: the larger is the degree of polarization between alternating governments; and the more likely it is that the current government will not be reelected. The paper has empirical implications which may contribute to explain the current fiscal policies in the United States and in several other countries.

Notes:

Print version record

July 1987.