A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms

36 Pages Posted: 8 Jul 2000 Last revised: 26 Oct 2022

See all articles by Andrés Velasco

Andrés Velasco

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Date Written: December 1997

Abstract

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. " First, fiscal deficits and debt accumulation occur even when there are no reasons for intertemporal smoothing. Second deficits can be eliminated through a fiscal reform, but such a reform may only take place after a" delay during which government debt is built up.

Suggested Citation

Velasco, Andrés, A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms (December 1997). NBER Working Paper No. w6336, Available at SSRN: https://ssrn.com/abstract=226089

Andrés Velasco (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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