A Positive Theory of Fiscal Deficits and Government Debt in a Democracy

Alberto Alesina and Guido Tabellini

No 2308, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper considers an economy in which policymakers with different preferences concerning fiscal policy alternate in office as a result of democratic elections. It is shown that in this situation government debt becomes a strategic variable used by each policymaker to influence the choices of his successors. In particular, if different policymakers disagree about the desired composition of government spending between two public goods, the economy exhibits a deficits bias. Namely, in this economy debt accumulation is higher than it would be with a social planner. According to the results of our model, the equilibrium level of government debt is larger: the larger is the degree of polarization between alternating governments; and the more likely it is that the current government will not be reelected. The paper has empirical implications which may contribute to explain the current fiscal policies in the United States and in several other countries.

Date: 1987-07
Note: ME
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Citations: View citations in EconPapers (35)

Published as "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, 57(3), July 1990: 403-414.

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Working Paper: A Positive Theory of Fiscal Deficits and Government Debt in a Democracy (1987)
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