A Common Pool Theory of Deficit Bias Correction
35 Pages Posted: 20 Dec 2006
Date Written: October 2006
Abstract
The budget deficit bias is modeled as the result of a domestic common pool problem and of an international externality. Along with Piguvian taxes, a number of policy measures are examined and welfare-ranked: deficit ceilings, golden rules and delegation. In general, the combination of delegation and an optimally-set deficit ceiling deliver the social optimum, even if the deficit ceiling is not credible.
Keywords: Common pool, fiscal restraints, fiscal rules, stability pact, fiscal institutions, deficit bias
JEL Classification: E61, E62, H6
Suggested Citation: Suggested Citation
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