Debts and Deficits with Fragmented Fiscal Policymaking
NBER Working Paper No. 6286
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. Transfers are higher than a benevolent planner would choose; fiscal deficits emerge even when there are no reasons for intertemporal smoothing, and in the long run government debt tends to be excessively high; peculiar time profiles for transfers can emerge, with high positive net transfers early on giving way to high taxes later on; and multiple dynamic equilibrium paths can occur starting at the same initial level of government debt.
Published: Velasco, Andres. "Debts And Deficits With Fragmented Fiscal Policymaking," Journal of Public Economics, 2000, v76(1,Apr), 105-125.