Check nearby libraries
Buy this book
![Loading indicator](/images/ajax-loader-bar.gif)
The conventional wisdom is that politicians' rent seeking motives increase public debt and deficit. This is because myopic politicians face political risk and prefer to extract political rents as early as possible. An implication of this argument is that governments will under-save during a boom, leaving the economy unprotected in the event of a downturn. This view motivates a number of fiscal rules which are aimed at cutting deficits and constraining borrowing so as to limit the size of this political distortion. In this paper we study the determination of government debt and deficits in a dynamic model of debt which characterizes political distortions. We find that in our model the conventional wisdom always applies in the long run, but only does so in the short run when economic volatility is low. Instead, when economic volatility is high, a rent-seeking government over-saves and over-taxes along the equilibrium path relative to a benevolent government. Paradoxically, the over-saving bias can also be solved in this case by a rule of capping deficits, although the mechanism operates through its effect on expectations of future rent extraction rather than though the contemporary constraint. However, these rules are ineffective in solving the high taxation problem caused by the political friction, which in the short run is more acute in the high income volatility scenario. Keywords: public debt, politicians, economic and political risk, rent-seeking, precautionary savings, starve-the-beast, fiscal rules. JEL Classifications: E6, H2, H6.
Check nearby libraries
Buy this book
![Loading indicator](/images/ajax-loader-bar.gif)
Previews available in: English
Subjects
Public Debts, Econometric models, Political aspects, Rent seekingShowing 1 featured edition. View all 1 editions?
Edition | Availability |
---|---|
1
Future rent-seeking and current public savings
2008, Massachusetts Institute of Technology, Dept. of Economics
in English
|
aaaa
Libraries near you:
WorldCat
|
Book Details
Edition Notes
"October 9, 2008."
Includes bibliographical references (p. 31-32).
Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.
The Physical Object
ID Numbers
Community Reviews (0)
Feedback?History
- Created May 13, 2011
- 2 revisions
Wikipedia citation
×CloseCopy and paste this code into your Wikipedia page. Need help?
May 13, 2011 | Edited by ImportBot | Added new cover |
May 13, 2011 | Created by ImportBot | Imported from Internet Archive item record |