Empirical Public Economics
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Edited by Attiat F. Ott and Richard J. Cebula
Chapter 19: The Political Theories of Deficits and Debt Accumulation
19 The political theories of deﬁcits and debt accumulation Vladislav Dolgopolov, Bonnie Orcutt and Attiat F. Ott Many and varied are the perspectives on budget deﬁcits offered by those who analyze them from a reformist standpoint. Some look for a return to the Victorian prudent household ethic … Others look for the election to ofﬁce of the more responsible, less myopic politicians…Yet still the deﬁcits accumulate: with each new administration, quite irrespective of its perceived location in policy space; with each new Congress, irrespective of its political party balance; with each new party leader; and with each new idea about how to redesign the budgetary process. ‘Government by red ink’, Buchanan, Rowley and Tollison (1986) 1 Introduction In a provocative paper ‘Why a stubborn conservative would run a deﬁcit: policy with time-inconsistent preferences’, Persson and Svensson (1989) offered a political theory of ﬁscal policy design. The theory is based on two premises: ﬁrst, the government in power looks forward with a strategic motive to inﬂuence the prospective ‘opposition’ government and secondly, the inherited stock of public debt affects a ‘newly’ elected government’s ﬁscal decisions. These two premises mean that the current government is likely to be forward looking and that its preferences differ from those of its successor. The instrument a ruling government uses to inﬂuence the ﬁscal decision of a succeeding government is the budget deﬁcit. In subsequent papers (Alesina and Tabellini, 1990; Persson and Tabellini, 1999), deﬁcits and debt...
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