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"Many countries, especially developing ones, follow procyclical fiscal polices, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less-than-benevolent government to appropriate rents. Voters have incentives similar to the "starving the Leviathan" classic argument, and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well. We test this argument against more traditional explanations based purely on borrowing constraints, with a reasonable amount of success"--National Bureau of Economic Research web site.
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Subjects
Fiscal policy, Business cycles, Econometric modelsPlaces
Developing countriesEdition | Availability |
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Why is fiscal policy often procyclical?
2005, National Bureau of Economic Research
Electronic resource
in English
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Book Details
Edition Notes
"September 2005."
Includes bibliographical references (p. 25-27).
Also available in PDF from the NBER world wide web site (www.nber.org).
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- Created September 29, 2008
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