EconPapers    
Economics at your fingertips  
 

Engineering Crises: Favoritism and Strategic Fiscal Indiscipline

Gilles Saint-Paul (), Davide Ticchi and Andrea Vindigni
Additional contact information
Andrea Vindigni: Universita degli studi di Genova

PSE Working Papers from HAL

Abstract: If people understand that some macroeconomic policies are unsustainable, why would they vote for them in the .first place? We develop a political economy theory of the endogenous emergence of fiscal crises, based on the idea that the adjustment mechanism to a crisis favors some social groups, that may be induced ex-ante to vote in favor of policies that are more likely to lead to a crisis. People are entitled to a certain level of a publicly provided good, which may be rationed in times of crises. After voting on that level, society votes on the extend to which it will be financed by debt. Under bad enough macro shocks, a crisis arises: taxes are set at their maximum but despite that some agents do not get their entitlement. Some social groups do better in this rationing process than others. We show that public debt .which makes crises more likely .is higher, as is the probability of a crisis, the greater the level of favoritism. If the favored group is important enough to be pivotal when society votes on the entitlement level, favoritism also leads to greater public expenditure. We show that the favored group may strategically favor a weaker state in order to make crises more frequent. Finally, the decisive voter when choosing expenditure may be different from the one when voting on debt. In such a case, constitutional limits on debt may raise the utility of all the poor, relative to the equilibrium outcome absent such limits.

Keywords: Public Debt; In- equality; Political Economy; Fiscal Crises; Favoritism; Entitlements; State Capacity (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-mac, nep-mic and nep-pol
Date: 2017-09
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01584043
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://halshs.archives-ouvertes.fr/halshs-01584043/document (application/pdf)

Related works:
Working Paper: Engineering Crises: Favoritism and Strategic Fiscal Indiscipline (2017) Downloads
Working Paper: Engineering Crises: Favoritism and Strategic Fiscal Indiscipline (2017) Downloads
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:hal:psewpa:halshs-01584043

Access Statistics for this paper

More papers in PSE Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2019-10-22
Handle: RePEc:hal:psewpa:halshs-01584043