MARC record from Internet Archive

LEADER: 03516nam 2200421Ia 4500
001 001753823
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008 101022e20081009maua bt 000 0 eng d
035 $a(OCoLC)671492843
040 $aMYG$cMYG
090 $aHB31.M415 no.08-20
100 1 $aCaballero, Ricardo J.
245 10 $aFuture rent-seeking and current public savings /$c[by] Ricardo J. Caballero [and] Pierre Yared.
260 $aCambridge, MA :$bMassachusetts Institute of Technology, Dept. of Economics,$c[2008]
300 $a32 p. :$bill. ;$c28 cm.
490 1 $aWorking paper series / Massachusetts Institute of Technology, Dept. of Economics ;$vworking paper 08-20
500 $a"October 9, 2008."
504 $aIncludes bibliographical references (p. 31-32).
520 3 $aThe 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.
530 $aAbstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.
650 0 $aRent seeking.
650 0 $aDebts, Public$xPolitical aspects.
650 0 $aDebts, Public$xEconometric models.
710 2 $aMassachusetts Institute of Technology.$bDept. of Economics.
830 0 $aWorking paper (Massachusetts Institute of Technology. Dept. of Economics) ;$vno. 08-20.
856 41 $uhttp://papers.ssrn.com/sol3/papers.cfm?abstract%5Fid=1281770$zTo download paper, go to the abstract page choose a download option.
852 0 $bARC$cNOLN2$hHB31.M415 no.08-20$4Institute Archives$5Noncirculating Collection 2
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