Why is Fiscal Policy Often Procyclical?

Alberto Alesina, Filipe Campante and Guido Tabellini

Journal of the European Economic Association, 2008, vol. 6, issue 5, 1006-1036

Abstract: Fiscal policy is procyclical in many developing countries. We explain this policy failure with a political agency problem. Procyclicality is driven by voters who seek to "starve the Leviathan" to reduce political rents. Voters observe the state of the economy but not the rents appropriated by corrupt governments. When they observe a boom, voters optimally demand more public goods or lower taxes, and this induces a procyclical bias in fiscal policy. The empirical evidence is consistent with this explanation: Procyclicality of fiscal policy is more pronounced in more corrupt democracies. (JEL: E62, D73, D78) (c) 2008 by the European Economic Association.

JEL-codes: D73 D78 E62 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (437)

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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? (2005)
Working Paper: Why is Fiscal Policy Often Procyclical?
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