 Tradeoffs, Delegation and Fiscal-Monetary Coordination in a Developing EconomyIndian Economic Review, 2007, vol. 42, issue 2, 141-164 Abstract: Strategic interaction between fiscal and monetary authorities and economic agents, can lead to the creation of more populism than is socially optimal. The tradeoffs through which this occurs, important for a populous democracy with a large number of poor, is that between populism and growth. This has not received much analytical attention. We derive this tradeoff from microfoundations (i) and show that a Nash equilibrium will occur with a level of populism higher than the optimal; fiscal and monetary interaction will lead to output below feasible levels, (ii) specify the conditions on which the results depend, (iii) discuss stabilisation possibilities, and (iv) show that optimal delegation to a pro-growth monetary authority and a conservative fiscal authority would lower populism and inflation, while keeping growth at sustainable levels. Last, the model is used to interpret Indian macroeconomic performance. Keywords: Tradeoffs; Dynamic Inconsistency; Fiscal-Monetary Co-Ordination; Delegation (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:dse:indecr:v:42:y:2007:i:2:p:141-164 Ordering information: This journal article can be ordered from Access Statistics for this article Indian Economic Review is currently edited by Pami Dua (Editor) & Ram Singh (Associate Editor) and Sunil Kanwar More articles in Indian Economic Review from Department of Economics, Delhi School of Economics University of Delhi, Delhi 110 007. Contact information at EDIRC. |
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