EconPapers    
Economics at your fingertips  
 

A Dynamic Theory of Public Spending, Taxation and Debt

Marco Battaglini () and Stephen Coate ()

No 1441, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: This paper presents a dynamic political economy theory of public spending, taxation and debt. Policy choices are made by a legislature consisting of representatives elected by geographically-defined districts. The legislature can raise revenues via a distortionary income tax and by borrowing. These revenues can be used to finance a national public good and district-specific transfers (interpreted as pork-barrel spending). The value of the public good is stochastic, reflecting shocks such as wars or natural disasters. In equilibrium, policy-making cycles between two distinct regimes: “business-as-usual” in which legislators bargain over the allocation of pork, and “responsible-policy-making” in which policies maximize the collective good. Transitions between the two regimes are brought about by shocks in the value of the public good. In the long run, equilibrium tax rates are too high and too volatile, public good provision is too low, and debt levels are too high. In some environments, a balanced budget requirement can improve citizen welfare.

New Economics Papers: this item is included in nep-pbe and nep-pub
Date: 2007-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://www.kellogg.northwestern.edu/research/math/papers/1441.pdf main text (application/pdf)

Related works:
Journal Article: A Dynamic Theory of Public Spending, Taxation, and Debt (2008) Downloads
Working Paper: A Dynamic Theory of Public Spending, Taxation and Debt (2007) Downloads
Working Paper: A Dynamic Theory of Public Spending, Taxation and Debt (2007)
Working Paper: A Dynamic Theory of Public Spending, Taxation and Debt (2006) Downloads
Working Paper: A Dynamic Theory of Public Spending, Taxation and Debt (2006) 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:nwu:cmsems:1441

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014. Contact information at EDIRC.
Bibliographic data for series maintained by Fran Walker (). This e-mail address is bad, please contact .

 
Page updated 2019-12-12
Handle: RePEc:nwu:cmsems:1441