Fiscal policy, debt and coalition behaviour: theory and evidence form Italy
Paper number: 97/14
Paper date: December 1997
Paper Category: Discussion Paper
Giacomo M. Barisone
University of Exeter
This paper presents a structural model of optimal fiscal policy in a multi party system which allows for the existence of coalition governments. The paper shows how political effects weaken stabilising feedback rules from inherited public debt to the current policy instruments of government expenditure, taxes and debt. It also yields new predictions about how debt contingent feedback rules may depend on partisan, electoral and type of government effects. These new predictions are supported by a test of the model on Italian data.
JEL Classification Nos: H1, H6, H30
Keywords: Political Business Cycles; Fiscal Policy; Public Debt; Structural Breaks; Coalitions
Corresponding Author: Giacomo M Barisone, Department of Economics, University of Exeter, Amory Building, Rennes Drive, Exeter, EX4 4RJ, UK, tel: (44) 1392 264480, fax: (44) 1392 263242, email: G.Barisone@exeter.ac.uk
Acknowledgements: I would like to thank Rebecca Driver, Campbell Leith, Ben Lockwood, Paolo Panteghini, Simon Wren-Lewis and Elias Tzavalis for useful comments and suggestions. Any errors are mine alone.