Republicans, Democrats and Budget Deficits: Fiscal Dynamics in Political Perspective

20 Pages Posted: 29 Nov 2016

See all articles by Jaime Marques Pereira

Jaime Marques Pereira

Nova School of Business and Economics

José Tavares

Centre for Economic Policy Research (CEPR); Nova School of Business and Economics

Date Written: November 2016

Abstract

We use an asymmetric cointegration framework to explore politically motivated fiscal asymmetries in the US, from Eisenhower to Obama. We analyze fiscal dynamics in response to deficits as an asymmetric process, sensitive to partisan and electoral motivations, characterizing the response of Republican and Democratic administrations to budget disequilibria. In a novel approach to empirical fiscal policy, we incorporate narrative data in our partisan framework, in order to to distinguish between responses to automatic and discretionary fiscal changes. We conclude that partisanship is a key factor in the fiscal response to budget disequlibria, with Democrats and Republicans exhibiting distinct corrective behavior. On the other hand, the timing of elections does not seem to be a key determinant of the fiscal response to unsustainable budget deviations.

Keywords: Asymmetric cointegration approach, Democrats, Fiscal Dynamics, Republicans

JEL Classification: H30, H62, H68

Suggested Citation

Marques Pereira, Jaime and Tavares, José, Republicans, Democrats and Budget Deficits: Fiscal Dynamics in Political Perspective (November 2016). CEPR Discussion Paper No. DP11654, Available at SSRN: https://ssrn.com/abstract=2877259

Jaime Marques Pereira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

José Tavares

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

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