Debts and Deficits with Fragmented Fiscal Policymaking

By Andrés Velasco. 2000

309 citations recorded by the source corpus.

This paper develops a political-economic model of fiscal policy - one in which government resources are a common property' out of which interest groups can finance expenditures on their preferred items. This setup has striking macroeconomic implications. Transfers are higher than a benevolent planner would choose; fiscal deficits emerge even when there are no reasons for intertemporal smoothing, and in the long run government debt tends to be excessively high; peculiar time profiles for transfers can emerge, with high positive net transfers early on giving way to high taxes later on; and multiple dynamic equilibrium paths can occur starting at the same initial level of government debt.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/8844ce135df0e43762797f770540a38006f07ac4

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

Citations in the corpus

Vertical fiscal imbalances and fiscal performance in advanced economies (2013, methodology): “Velasco (1999, 2000) applies this approach to a fiscal decentralization framework.”
Jurisdiction Size and Local Government Policy Expenditure: Assessing the Effect of Municipal Amalgamation (2016, background): “Greater political fragmentation, as captured by the effective number of political parties, could increase government spending if government resources are seen as common property, subject to overuse by fragmented decision-makers (Velasco 2000).”
Budget Institutions and Fiscal Performance in Central and Eastern European Countries (2003, unknown): “* This paper follows the idea developed by one branch of this literature, which started with Weingast et al. (1981) and includes von Hagen and Harden (1995) and Velasco (1999, 2000), to view the budget process as resembling a common pool resource situation. According to this approach, as financing i”
Fiscal institutions, fiscal policy and sovereign risk premia in EMU (2008, unknown): “In an inter-temporal version of the model, spending will be high and financed by deficits leading to even higher tax costs for future generations (Velasco 2000).”
Promoting sustainable public finances in the European Union: The role of fiscal rules and government efficiency (2016, background): “Von Hagen and Harden (1995) and Hallerberg and von Hagen (1999) use political economy models of the deficit bias to show that fiscal restraints can be desirable and that delegation of the budget decision reduces the bias.”
Coordination and Crisis in Monetary Unions (2015, background): “Velasco (2000) describes an interesting fiscal externality that arises in a “tragedy of commons” environment where multiple groups/state governments share a common fiscal resource.”
Fiscal Rules, Fiscal Institutions, and Fiscal Performance (2002, methodology): “Taking a different methodological approach, the country studies of Stienlet (2000), Molander (2000) and Strauch and von Hagen (1999) point to the importance of centralisation in achieving (or, in the case of Germany losing) fiscal discipline.”
Government Weakness and Local Public Debt Development in Flemish Municipalities (2005, background): “Though the standard common pool model has a static set-up and only predicts over-expenditures, it has been shown that in a dynamic setting higher fragmentation levels lead to larger deficits (Velasco, 1999, 2000).”