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Battaglini, Marco, and
Stephen Coate. 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt."
,
98(1): 201-36.
Show Article Details
DOI: 10.1257/aer.98.1.201
Abstract:This paper presents a political economy theory of fiscal policy. Policy choices
are made by a legislature that can raise revenues via an income tax and by
borrowing. Revenues can be used to finance a public good, whose value is
stochastic, and pork-barrel spending. Policymaking cycles between a "business-
as-usual" regime in which legislators bargain over pork, and a "responsible
policymaking" regime in which policies maximize the collective good.
Transitions between regimes are brought about by shocks in the value of the
public good. Equilibrium tax rates are too high, public good provision is too
low, and debt levels are too high. (JEL D72, E62, H20, H50, H60)
Additional links:
Link to Appendix
Authors:
Battaglini, Marco (Princeton U)
Coate, Stephen (Cornell U)
JEL Classifications:
D72: Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
E62: Fiscal Policy
H20: Taxation, Subsidies, and Revenue: General
H50: National Government Expenditures and Related Policies: General
H60: National Budget, Deficit, and Debt: General
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