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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: E62 D73 D78 (search for similar items in EconPapers)
Date: 2008
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Working Paper: Why is fiscal policy often procyclical? (2005) Downloads
Working Paper: Why Is Fiscal Policy Often Procyclical? (2005) Downloads
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