Why is Fiscal Policy Often Procyclical?

Alberto Alesina and Guido Tabellini

No 11600, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many countries, especially developing ones, follow procyclical fiscal polices, 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.

Date: 2005-09
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pol
Note: EFG PE POL
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Published as Alberto Alesina & Filipe R. Campante & Guido Tabellini, 2008. "Why is Fiscal Policy Often Procyclical?," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1006-1036, 09.

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Related works:
Working Paper: Why Is Fiscal Policy Often Procyclical? (2008)
Working Paper: Why is Fiscal Policy often Procyclical? (2005)
Working Paper: Why is fiscal policy often procyclical? (2005)
Working Paper: Why is fiscal policy often procyclical? (2005)
Working Paper: Why Is Fiscal Policy Often Procyclical? (2005)
Working Paper: Why is Fiscal Policy Often Procyclical?
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