NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms

Andres Velasco

NBER Working Paper No. 6336
Issued in December 1997
NBER Program(s):   PE

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.

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Document Object Identifier (DOI): 10.3386/w6336

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