The political color of fiscal responsibility

Andreas Müller, Kjetil Storesletten, Fabrizio Zilibotti

Research output: Contribution to journalArticlepeer-review

35 Scopus citations

Abstract

We propose a dynamic general equilibrium model that yields testable implications about the fiscal policy run by governments of different political color. Successive generations of voters choose taxation, expenditure, and government debt through repeated elections. Voters are heterogeneous by age and by the intensity of their preferences for public good provision. The political equilibrium switches stochastically between left- (pro-public goods) and right-leaning (pro-private consumption) governments. A shift to the left (right) is associated with a fall (increase) in government debt, an increase (fall) in taxation, and an increase (fall) in government expenditures. However, left-leaning governments engage in more debt accumulation during recessions. These predictions are shown to be consistent with the time-series evidence for the United States in the postwar period, and also with the evidence for a panel of OECD countries.

Original languageEnglish (US)
Pages (from-to)252-302
Number of pages51
JournalJournal of the European Economic Association
Volume14
Issue number1
DOIs
StatePublished - Feb 1 2016
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2016 by the European Economic Association.

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