Working Paper: NBER ID: w4637
Authors: Alberto Alesina; Roberto Perotti
Abstract: This paper provides a critical survey of the literature on politico-institutional determinants of the government budget. We organize our discussion around two questions: Why did certain OECD countries, but not others, accumulate large public debts? Why did these fiscal imbalances appear in the last twenty years rather than before? We begin by discussing the 'tax smoothing' model and conclude that this approach alone cannot provide complete answers to these questions. We will then proceed to a discussion of political economy models, which we organize in six groups: i) Models based upon opportunistic policy makers and naive voters with 'fiscal illusion'; ii) Models of intergenerational redistributions; iii) Models of debt as a strategic variable, linking the current government with the next one; iv) Models of coalition governments; v) Models of geographically dispersed interests; vi) Models emphasizing the effects of budgetary institutions.
Keywords: Budget Deficits; Political Economy; Fiscal Policy
JEL Codes: H62; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| politico-institutional factors (F55) | accumulation of public debts (H69) |
| politico-institutional characteristics (P16) | fiscal outcomes (H68) |
| differences in debt accumulation (H60) | institutions governing countries (O43) |
| timing of fiscal imbalances (E62) | shifts in political and institutional dynamics (O17) |