Debts and deficits with fragmented fiscal policymaking

This paper develops a political-economic model of fiscal policy - one in wh ich government resources are a 'common property' out of which interest grou ps can finance expenditures on their preferred items. This setup has striki ng macroeconomic implications. Transfers are higher than a benevolent plann er would choose them to be; fiscal deficits emerge even when there are no r easons for intertemporal smoothing, and in the long run government debt ten ds to be excessively high; peculiar time profiles for transfers can emerge, with high net transfers early on giving rise to high taxes later on. (C) 2 000 Elsevier Science S.A. All rights reserved.