Political models of budget deficits: a literature review
Maria Manuel Pinho
Economic literature on the explanation of public deficits has been focusing on two main issues. On one hand, the accumulation of public debts in recent decades and, on the other hand, the large observed cross-countries differences on public deficits and debt. Economic arguments alone are not sufficient to explain this behavior. Therefore, recent political economy literature emphasizes the role of political and institutional factors in the explanation of the fiscal policy and, in particular, of the budget balances behavior. This paper surveys a set of political-economic models of budget deficits, providing an up-to-date, critical review of the main models. The main conclusion is the need of conducting more rigorous empirical tests.
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