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Title:Why is fiscal policy often procyclical? PDF Logo
Authors:Alesina, Alberto
Tabellini, Guido
Issue Date:2005
Series/Report no.:CESifo working papers 1556
Abstract:Many countries, especially developing ones, follow procyclical fiscal policies, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less-than-benevolent government to appropriate rents. Voters have incentives similar to the "starving the Leviathan" classic argument, and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well. We test this argument against more traditional explanations based purely on borrowing constraints, with a reasonable amount of success.
JEL:H6
H3
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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