Goyal, Ashima and Paul, Manas (2004): Interest groups or incentives: the political economy of fiscal decay. Published in: Reforms, Institutions and Policies: Challenges Confronting the Indian Economy (2004)
Download (215kB) | Preview
One view is that concessions demanded by and granted to interests groups are responsible for steady fiscal decline, and delay in reforms. We argue that negative supply shocks combined with the political objective of protecting the poor can build in incentives leading to these results. Pricing rules for government services, generated in such circumstances, would be equivalent to a fixed price contract that left the government with negative rent. A decline in investment in and quality of government services would follow, since price controls in the presence of cost shocks would lead to systematic incentives to lower quality and investment. Tax capacity and the ability to reduce poverty in the future would fall. The framework helps to understand the Indian experience. Time series based tests of causality support the causal priority of positive cost shocks. If it is accepted that incentives, and not only interest groups are responsible for fiscal decay, a concerted attempt to rationalize user charges and improve quality may be politically feasible.
|Item Type:||MPRA Paper|
|Original Title:||Interest groups or incentives: the political economy of fiscal decay|
|Keywords:||Cost shocks, user charges, political economy, cross-subsidization, interest groups, fiscal decay, incentives|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models
O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy
P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy
|Depositing User:||ashima goyal|
|Date Deposited:||06. Mar 2011 21:28|
|Last Modified:||13. Feb 2013 01:06|
Alesina, A. and A. Drazen, 1991, "Why are Stabilizations Delayed?" American Economic Review, 81, 5, 1170-88.
Bajaj, J.L., 1999, "Impact of Pay Revision on State Governments' Finances", Economic and Political Weekly, 43, 22, 1341-1351.
Bardhan, P., 1984, The Political Economy of Development in India, Oxford: Basil Blackwell.
Boiteux, M., 1960, "Peak Load Pricing," Journal of Business, 33, 157-179.
Central Statistical Organisation, National Accounts Statistics, Various issues.
Dixit, A.K, 1996, The Making of Economic Policy: a Transactions-cost Politics Perspective, Cambridge: MIT Press.
Drazen, A., 1996, "The Political Economy of Delayed Reform," Journal of Policy Reform, 1, 1, 25-46.
EPW Research Foundation, 1996, National Accounts Statistics of India, 1950-51 to 1994-95, Bombay: EPW Research Foundation.
Faulhaber, G., 1975, "Cross subsidization: Pricing in Public Enterprises", American Economic Review, 65, 966-977.
Goyal, A., 1999, "The Political Economy of the Revenue Deficit", in India Development Report, ed. by Kirit S. Parikh, IGIDR and Oxford University Press.
Joskow, P., 1998, “Regulatory Priorities for Reforming Infrastructure Sectors in Developing Countries”, paper presented at Annual Bank Conference on Development Economics, Washington: World Bank.
Koop, G., M.H. Peseran, and S.M. Potter 1996, “Impulse Response Analysis in Nonlinear Multivariate Models”, Journal of Econometrics, 74, 119-147.
Laffont, J.J. and J. Tirole, 1993, “A Theory of Incentives in Procurement and Regulation”, Cambridge: MIT Press
Nakajima, K., 1995, "Block Causality Tests of Taiwan's Trade Structure and Economic Growth", Economic Review 46(2), 125-35.
Obben, J., 1996, "Dynamic Relationships among GDP, Government Revenue and Expenditure in Brunei: A Vector Autoregressive Model," Singapore Economic Review, 41(2), 67-86.
Peseran, M.H. and Y.Shin 1997, “Generalized Impulse Response Analysis in Linear Multivariate Models”, unpublished manuscript, Cambridge University.
Rodrick, Dani, 1996, "Understanding Economic Policy Reform," Journal of Economic Literature, 34, 1, 9-41.
Sims, C, 1980, “Macroeconomics and Reality”, Econometrica, 48, 1-48.
Sims, C, 1981, “An Autoregressive Index Model for the US 1948-1975’, Large-Scale Econometric Models, ed. J.B. Ramsey, North-Holland, The Netherlands.
Toda, H.Y. and Phillips, P.C.B., 1993, "Vector Autoregressions and Causality", Econometrica, 61, 6, 1367-1393.
Available Versions of this Item
- Interest groups or incentives: the political economy of fiscal decay. (deposited 06. Mar 2011 21:28) [Currently Displayed]