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The Elgar Companion to Public Economics

Empirical Public Economics

Edited by Attiat F. Ott and Richard J. Cebula

Attiat Ott and Richard Cebula have recognised the need to present, in an accessible and straightforward way, the voluminous literature in the public economics arena. Advances in econometric techniques and the spillover of knowledge from other disciplines made it difficult, not only for students but also for lecturers, to accurately find the information they need.
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Chapter 19: The Political Theories of Deficits and Debt Accumulation

Vladislav Dolgopolov, Bonnie Orcutt and Attiat F. Ott


19 The political theories of deficits and debt accumulation Vladislav Dolgopolov, Bonnie Orcutt and Attiat F. Ott Many and varied are the perspectives on budget deficits offered by those who analyze them from a reformist standpoint. Some look for a return to the Victorian prudent household ethic … Others look for the election to office of the more responsible, less myopic politicians…Yet still the deficits accumulate: with each new administration, quite irrespective of its perceived location in policy space; with each new Congress, irrespective of its political party balance; with each new party leader; and with each new idea about how to redesign the budgetary process. ‘Government by red ink’, Buchanan, Rowley and Tollison (1986) 1 Introduction In a provocative paper ‘Why a stubborn conservative would run a deficit: policy with time-inconsistent preferences’, Persson and Svensson (1989) offered a political theory of fiscal policy design. The theory is based on two premises: first, the government in power looks forward with a strategic motive to influence the prospective ‘opposition’ government and secondly, the inherited stock of public debt affects a ‘newly’ elected government’s fiscal decisions. These two premises mean that the current government is likely to be forward looking and that its preferences differ from those of its successor. The instrument a ruling government uses to influence the fiscal decision of a succeeding government is the budget deficit. In subsequent papers (Alesina and Tabellini, 1990; Persson and Tabellini, 1999), deficits and debt...

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