Devouring the Leviathan: Fiscal Policy and Public Expenditure in Colombia
58 Pages Posted: 9 Apr 2010
Date Written: April 8, 2010
Overall, this paper presents a white swan that seems to confirm the hypothesis of Alesina/Tabellini/Campante (2008). Fiscal policy in many developing countries is procyclical. Specifically, the former may explain monetary policy failures associated with problems of political agency. And in this case, the trend of the cycles is caused by voters who seek to devour the Leviathan by reducing their incomes. In these cases, voters observe the conditions of the economy, but not willing to cover the costs of corrupt governments. When they observe a boom, voters optimally demand more public goods or lower taxes, and this induces a procyclical bias in fiscal policy. The empirical evidence is consistent with this explanation: Procyclicality of fiscal policy is more pronounced in more corrupt democracies.
Keywords: Colombia, procyclical economy, tax power, redistributive justice, state controls
JEL Classification: E6, E70, A1, H2, H5, H7, H71, B2
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