FISCAL POLICY, PUBLIC DEBT STABILIZATION AND POLITICS: THEORY AND EVIDENCE FROM THE US AND UK
Paper number: 94/01
Paper date: March 1994
Paper Category: Discussion Paper
University of Exeter and CEPR
University of Essex
University of Edinburgh
This paper presents a two-party model of fiscal and debt policy which; (i) explicitly models the partisan, stabilisation, and (to some extent) survival motives of politicians; (ii) has predictions that are largely consistent with existing empirical findings about partisan and electoral effects in government expenditure, tax revenue, and debt; (iii) yields new predictions about how the feedback of fiscal policy on lagged debt may depend on partisan and electoral effects. These new predictions are not rejected by a test of the model on US and UK data.
Revised March 1994
- JEL Classification numbers: E30, E62, E63.
- Keywords: Political business cycles, stabilization, fiscal policy, public debt.
- We would like to thank G.Alogoskoufis, M.Chambers, T.Kollintzas and J.Richmond for helpful comments. We have also benefitted from the comments of seminar participants at Tilburg, IRES in Louvain-La-Neuve,.3 CPER in Athens and the European Economic Society Conference in Uppsala.