The Political Economy of Unsustainable Fiscal Deficits

This paper uses an inter temporal model of public finances to show that political instability can cause taxes to be tilted to the future, resulting in a fiscal deficit that is suboptimal and only weakly sustainable (in the sense of Quintos). This occurs because political instability gives the govern...

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Autores principales:	Pasten,Roberto, Cover,James P
Lenguaje:	English
Publicado:	Instituto de Economía, Pontificia Universidad Católica de Chile 2010
Materias:	Fiscal Policy Political Instability Weak and Strong Sustainability Cointegration with Change in Regime
Acceso en línea:	http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0717-68212010000200002
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spelling	oai:scielo:S0717-682120100002000022011-10-17The Political Economy of Unsustainable Fiscal DeficitsPasten,RobertoCover,James P Fiscal Policy Political Instability Weak and Strong Sustainability Cointegration with Change in Regime This paper uses an inter temporal model of public finances to show that political instability can cause taxes to be tilted to the future, resulting in a fiscal deficit that is suboptimal and only weakly sustainable (in the sense of Quintos). This occurs because political instability gives the government an incentive to implement a myopic fiscal policy in order to increase its chances of remaining in office. The government achieves this by delaying taxes (or advancing spending) in order to buy political support, which in turn causes an upward trend in the deficit process and a financial crisis. Using annual data for Chile for the 1833-1999 periods, we present statistical test results that support the model.info:eu-repo/semantics/openAccessInstituto de Economía, Pontificia Universidad Católica de ChileCuadernos de economía v.47 n.136 20102010-11-01text/htmlhttp://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0717-68212010000200002en10.4067/S0717-68212010000200002
institution	Scielo Chile
collection	Scielo Chile
language	English
topic	Fiscal Policy Political Instability Weak and Strong Sustainability Cointegration with Change in Regime
spellingShingle	Fiscal Policy Political Instability Weak and Strong Sustainability Cointegration with Change in Regime Pasten,Roberto Cover,James P The Political Economy of Unsustainable Fiscal Deficits
description	This paper uses an inter temporal model of public finances to show that political instability can cause taxes to be tilted to the future, resulting in a fiscal deficit that is suboptimal and only weakly sustainable (in the sense of Quintos). This occurs because political instability gives the government an incentive to implement a myopic fiscal policy in order to increase its chances of remaining in office. The government achieves this by delaying taxes (or advancing spending) in order to buy political support, which in turn causes an upward trend in the deficit process and a financial crisis. Using annual data for Chile for the 1833-1999 periods, we present statistical test results that support the model.
author	Pasten,Roberto Cover,James P
author_facet	Pasten,Roberto Cover,James P
author_sort	Pasten,Roberto
title	The Political Economy of Unsustainable Fiscal Deficits
title_short	The Political Economy of Unsustainable Fiscal Deficits
title_full	The Political Economy of Unsustainable Fiscal Deficits
title_fullStr	The Political Economy of Unsustainable Fiscal Deficits
title_full_unstemmed	The Political Economy of Unsustainable Fiscal Deficits
title_sort	political economy of unsustainable fiscal deficits
publisher	Instituto de Economía, Pontificia Universidad Católica de Chile
publishDate	2010
url	http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0717-68212010000200002
work_keys_str_mv	AT pastenroberto thepoliticaleconomyofunsustainablefiscaldeficits AT coverjamesp thepoliticaleconomyofunsustainablefiscaldeficits AT pastenroberto politicaleconomyofunsustainablefiscaldeficits AT coverjamesp politicaleconomyofunsustainablefiscaldeficits
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The Political Economy of Unsustainable Fiscal Deficits

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