Alesina%2c%20Tabellini%2c%20Campante%20-%20Why%20Is%20Fiscal%20Policy%20Often%20Procyclical

Alesina%2c%20Tabellini%2c%20Campante%20-%20Why%20Is%20Fiscal%20Policy%20Often%20Procyclical

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Unformatted text preview: Hadi Salehi Esfahani Hadi Salehi Esfahani Why Is Fiscal Policy Often Pro- Cyclical? Alberto Alesina Filipe R. Campante Guido Tabellini Hadi Salehi Esfahani n Fiscal policy is procyclical in many developing countries. n An explanation based on a political agency problem: q Voters seek to starve the Leviathan to reduce political rents. n Voters observe the state of the economy but not the rents. q In booms, voters demand more public goods or lower taxes. n Supportive empirical evidence: q Procyclicality of fiscal policy is more pronounced in more corrupt democracies. Key Issues Hadi Salehi Esfahani n The Model n Empirical Analysis n Conclusion Structure of Presentation Hadi Salehi Esfahani n A small open economy with an infinite horizon. n A representative consumer with private ( c t ) and public ( gt ) consumption: n Endowment income per period: y [ ] n Tax rate: t n Private consumption: c t = (1 t ) yt . n Appropriated rents by the government: rt qt n Upper bound on rt : n Utility of the government: The Model = = + [ ( ) ( )] t t t t U E u c h g , y y = + t t q q y = = ( ) t t t V E v r...
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This note was uploaded on 01/27/2012 for the course ECON 509 taught by Professor Villamil during the Fall '08 term at University of Illinois, Urbana Champaign.

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Alesina%2c%20Tabellini%2c%20Campante%20-%20Why%20Is%20Fiscal%20Policy%20Often%20Procyclical

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