Why is Fiscal Policy Often Procyclical

By A. Alesina, Guido Tabellini. 2008

351 citations recorded by the source corpus.

Many countries, especially developing ones, follow procyclical fiscal policies, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less-than-benevolent government to appropriate rents. Voters have incentives similar to the "starving the Leviathan" classic argument, and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well. We test this argument against more traditional explanations based purely on borrowing constraints, with a reasonable amount of success.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/51e59b6804dbf10578610f97cc017be2121ea3e8

Citations in the corpus

• Fiscal policy responsiveness, persistence, and discretion (2010, neutral): “In particular, while Persson (2001) and Persson and Tabellini (2001) find that, in general, parliamentary and majority based systems are related to cyclicality of fiscal policy, Alesina et al. (2008) found that most of the pro-cyclicality of fiscal policy in developing countries can be explained b”