Political and Economic Determinants of Budget Deficits in the Industrialdemocracies

56 Pages Posted: 13 Aug 2001 Last revised: 9 Jan 2002

See all articles by Nouriel Roubini

Nouriel Roubini

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Jeffrey D. Sachs

Columbia University - Columbia Earth Institute; National Bureau of Economic Research (NBER)

Date Written: August 1988

Abstract

This paper focuses on the management of fiscal deficits and the public debt in the industrial democracies. Given the large deficits in many OECD countries in recent years, and the resulting sharp rise in the public debt, it is important to determine the economic and political forces leading to such large deficits. We find only partial support for the "equilibrium approach to fiscal policy", which assumes that tax rates are set over time in order to minimize the excess burden of taxation. Tax rates do not seem to be smoothed, and budget deficits in many countries in recent years appear to be too large to be explained by appeal to transitory increases in government spending. We suggest that in several countries the slow rate at which the post-'73 fiscal deficits were reduced resulted from the difficulties of political management in coalition governments. There is a clear tendency for larger deficits in countries characterized by a by a short average tenure of government and by the presence of many political parties in a ruling coalition.

Suggested Citation

Roubini, Nouriel and Sachs, Jeffrey D., Political and Economic Determinants of Budget Deficits in the Industrialdemocracies (August 1988). NBER Working Paper No. w2682. Available at SSRN: https://ssrn.com/abstract=278754

Nouriel Roubini (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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Jeffrey D. Sachs (Contact Author)

Columbia University - Columbia Earth Institute ( email )

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