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

Jose Tavares () and Jaime Pereira

No 11654, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: Fiscal dynamics; Asymmetric cointegration approach; Democrats; Republicans (search for similar items in EconPapers)
JEL-codes: H30 H62 H68 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-pbe and nep-pol
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