Open AccessTHE POLITICAL COLOR OF FISCAL RESPONSIBILITY
Author(s) -
Müller Andreas,
Storesletten Kjetil,
Zilibotti Fabrizio
Publication year - 2016
Publication title -
journal of the european economic association
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 7.792
H-Index - 93
eISSN - 1542-4774
pISSN - 1542-4766
DOI - 10.1111/jeea.12154
Subject(s) - economics , debt , politics , consumption (sociology) , fiscal policy , monetary economics , government (linguistics) , recession , public good , government debt , general equilibrium theory , private consumption , macroeconomics , microeconomics , political science , law , social science , linguistics , philosophy , sociology
Abstract We propose a dynamic general equilibrium model that yields testable implications about the fiscal policy run by governments of different political color. Successive generations of voters choose taxation, expenditure, and government debt through repeated elections. Voters are heterogeneous by age and by the intensity of their preferences for public good provision. The political equilibrium switches stochastically between left‐ (pro‐public goods) and right‐leaning (pro‐private consumption) governments. A shift to the left (right) is associated with a fall (increase) in government debt, an increase (fall) in taxation, and an increase (fall) in government expenditures. However, left‐leaning governments engage in more debt accumulation during recessions. These predictions are shown to be consistent with the time‐series evidence for the United States in the postwar period, and also with the evidence for a panel of OECD countries. (JEL: D72, E62, H41, H62, H63)