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1 novembre 2010
- handle: 10670/1.lpbz0y
Ce document est lié à :
10.4067/S0717-68212010000200002
info:eu-repo/semantics/openAccess
Mots-clés
Fiscal Policy Political Instability Weak and Strong Sustainability Cointegration with Change in RegimeCiter ce document
Roberto Pasten et al., « The Political Economy of Unsustainable Fiscal Deficits », Cuadernos de Economía - Latin American Journal of Economics, ID : 10670/1.lpbz0y
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Résumé
This paper uses an inter temporal model of public finances to show that political instability can cause taxes to be tilted to the future, resulting in a fiscal deficit that is suboptimal and only weakly sustainable (in the sense of Quintos). This occurs because political instability gives the government an incentive to implement a myopic fiscal policy in order to increase its chances of remaining in office. The government achieves this by delaying taxes (or advancing spending) in order to buy political support, which in turn causes an upward trend in the deficit process and a financial crisis. Using annual data for Chile for the 1833-1999 periods, we present statistical test results that support the model.