DISTRIBUTIONAL CONFLICT, FINANCIAL ADAPTATION AND DELAYED STABILIZATIONS

Raúl Labán and Federico Sturzenegger

Economics and Politics, 1994, vol. 6, issue 3, 257-276

Abstract: In this paper we model delayed stabilizations as the rational outcome of a distributional conflict between two risk averse groups in the presence of post‐stabilization payoff uncertainty and costly policy reversion. We show that in the initial stages of an extreme inflation episode there is a bias towards maintaining the current inefficient (but certain) revenue collection system which prevents the adoption of the required fiscal adjustment program. The access by those with higher income to a financial adaptation technology increases the average rate of inflation through time for any given government deficit, raising the welfare costs of not reaching an agreement and increasingly redistributing the burden of inflation to those with lower income. This process, if strong enough, will eventually trigger the necessary political support for the required fiscal adjustment. Delayed stabilizations will, nevertheless, induce the poor into accepting conditions that they did not find optimal before.

Date: 1994
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
https://doi.org/10.1111/j.1468-0343.1994.tb00100.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:ecopol:v:6:y:1994:i:3:p:257-276

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0954-1985

Access Statistics for this article

Economics and Politics is currently edited by Peter Rosendorff

More articles in Economics and Politics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().