Ilzetzki, Ethan (2006): Rent seeing distortions and fiscal procyclicality.
Download (277kB) | Preview
Recent research has demonstrated that while government expenditures are countercyclical in most industrialized countries, they tend to be procyclical in developing countries. We develop a dynamic political-economy model to explain this phenomenon. Simulations of the model allow us to quantitatively compare the relative role of common explanations for fiscal procyclicality. We conclude that rent seeking within the fiscal process can explain fiscal procyclicality better than other common explanations, such as borrowing constraints and macroeconomic volatility.
|Item Type:||MPRA Paper|
|Original Title:||Rent seeing distortions and fiscal procyclicality|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
|Depositing User:||Ethan Ilzetzki|
|Date Deposited:||13. May 2008 01:17|
|Last Modified:||12. Feb 2013 16:22|
 Acemoglu, Daron, James A. Robinson, and Simon Johnson. 2000. "The Colonial Origins of Comparative Development." American Economic Re- view 91 (December): 1369-1401.  Aiyagari, S. Rao, Albert Marcet, Thomas J. Sargent, and Juha Seppälä. 2002. �Optimal Taxation without State Contingent Debt.�Journal of Po- litical Economy 110 (December): 1220-1254.  Alesina, Alberto and Guido Tabellini. 2005. "Why is Fiscal Policy Often Procyclical?" Working Paper no. 11600 (September), NBER, Cambridge, MA. Barro, Robert. 1979. �On the Determination of Public Debt.�Journal of Political Economy 87 (October): 940-971.  Battaglini, Marco and Stephen Coate. 2006. �A Dynamic Theory of Pub- lic Spending, Taxation and Debt.�Working Paper no. w12100 (March), NBER, Cambridge, MA.  Catão, Luis, and Bennett Sutton. 2002. "Sovereign Defaults: The Role of Volatility." Working Paper WP/02/149 (September), International Mone- tary Fund, Washington D.C. Chari, V. V. and Patrick J. Kehoe. 1999. "Optimal Fiscal and Monetary Policy" in Handbook of Macroeconomics, edited by John B. Taylor Michael and Woodford. Amsterdam: North Holland.  Easterly,William, and Ross Levine. 2003. "Tropics, Germs and Crops: How Endowments In�uence Economic Development." Journal of Monetary Eco- nomics 50 (January): 3-39.  Gavin, Michael and Roberto Perotti. 1997. �Fiscal Policy in Latin Amer- ica.�in NBER Macroeconomics Annual, edited by Ben Bernanke and Julio Rotemberg. Cambridge, MA: MIT Press.  Heston, Alan, Robert Summers, and Bettina Aten. 2002. �Penn World Table Version 6.1�, Center for International Comparisons at the University of Pennsylvania (CICUP), October.  Kaufmann, Daniel, Aart Kraay and Massimo Mastruzzi. 2005. �Gover- nance Matters IV: Governance Indicators for 1996-2004.�Policy Research Working Paper 3106, World Bank, Washington D.C.  Kaminsky, Graciella , Carmen Reinhart and Carlos A. Vegh. 2004. �When It Rains It Pours: Procyclical Capital Flows and Macroeconomic Policies.� in NBER Macroeconomic Annual, edited by Mark Gertler and Kenneth Rogo¤, Cambridge, MA: MIT Press.  Lane, Phillip. 2003. "The Cyclical Behavior of Fiscal Policy: Evidence from the OECD." Journal of Public Economics 87 (December): 2661-2675.  Lucas, Robert E., Jr., and Nancy L. Stokey. 1983. �Optimal Fiscal and Monetary Policy in an Economy without Capital.� Journal of Monetary Economics, 12 (July): 55�93.  Enrique G. Mendoza & P. Marcelo Oviedo, 2006. "Fiscal Policy and Macro- economic Uncertainty in Developing Countries: The Tale of the Tormented Insurer," NBER Working Papers 12586, National Bureau of Economic Re- search, Inc.  Polity IV Database, http://www.cidcm.umd.edu/inscr/polity/  Riascos, Alvaro, and Carlos A. Vegh. 2003. "Procyclical Government Spending in Developing Countries: The Role of Capital Market Imper- fections." Working Paper (October).  Stock, James H., and Motohiro Yogo. 2002. "Testing for Weak Instruments in Linear IV Regression" Working Paper t284 (November). NBER, Cam- bridge, MA.  Talvi Ernesto and Carlos A. Vegh. 2005. "Tax Base Variability and Pro- cyclical Fiscal Policy." Journal of Development Economics 78 (October): 156-190.  Tornell, Aaron and Phillip R. Lane. 1999. �The Voracity E¤ect�, The American Economic Review, 89 (January): 22-46.
Available Versions of this Item
- Rent seeing distortions and fiscal procyclicality. (deposited 13. May 2008 01:17) [Currently Displayed]