Engineering crises: Favoritism and strategic fiscal indiscipline

Gilles Saint-Paul; Davide Ticchi; Andrea Vindigni

doi:10.1111/ecpo.12175

Engineering crises: Favoritism and strategic fiscal indiscipline

Gilles Saint-Paul, Davide Ticchi, Andrea Vindigni

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

We develop a political economy theory of the endogenous emergence of fiscal crises based on the idea that the adjustment mechanism to a crisis favors some social groups, that may be induced ex-ante to vote for fiscal policies that are more likely to lead to a crisis. Greater levels of favoritism lead to a higher public debt and more frequent crises, as well as to higher public expenditure, if the favored group is large enough. We provide conditions under which the favored group strategically favors a weaker state's fiscal capacity and when constitutional limits on debt raise the utility of all poor.

Original language	English (US)
Journal	Economics and Politics
DOIs	https://doi.org/10.1111/ecpo.12175
State	Accepted/In press - 2021

Keywords

entitlements
favoritism
fiscal capacity
fiscal crises
populism
public debt

ASJC Scopus subject areas

Economics and Econometrics

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10.1111/ecpo.12175

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title = "Engineering crises: Favoritism and strategic fiscal indiscipline",

abstract = "We develop a political economy theory of the endogenous emergence of fiscal crises based on the idea that the adjustment mechanism to a crisis favors some social groups, that may be induced ex-ante to vote for fiscal policies that are more likely to lead to a crisis. Greater levels of favoritism lead to a higher public debt and more frequent crises, as well as to higher public expenditure, if the favored group is large enough. We provide conditions under which the favored group strategically favors a weaker state's fiscal capacity and when constitutional limits on debt raise the utility of all poor.",

keywords = "entitlements, favoritism, fiscal capacity, fiscal crises, populism, public debt",

author = "Gilles Saint-Paul and Davide Ticchi and Andrea Vindigni",

note = "Funding Information: We are grateful for comments to two anonymous referees, Giuseppe Bertola, Adam Hoole, Giovanni Battista Pittaluga, to seminar participants at the Bank of Spain, the Paris School of Economics Macro Retreat, ESSIM, the University of Genova, the Bank of Finland, and the University of Reading. Gilles Saint‐Paul gratefully acknowledges financial support from CEPREMAP, Paris Sciences Lettres and the PjSE Ecole Universitaire de Recherche under grant grant ANR‐17‐EURE‐0001; and Davide Ticchi from IMT Lucca and Marche Polytechnic University. Publisher Copyright: {\textcopyright} 2021 John Wiley & Sons Ltd",

year = "2021",

doi = "10.1111/ecpo.12175",

language = "English (US)",

journal = "Economics and Politics",

issn = "0954-1985",

publisher = "Wiley-Blackwell",

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TY - JOUR

T1 - Engineering crises

T2 - Favoritism and strategic fiscal indiscipline

AU - Saint-Paul, Gilles

AU - Ticchi, Davide

AU - Vindigni, Andrea

N1 - Funding Information: We are grateful for comments to two anonymous referees, Giuseppe Bertola, Adam Hoole, Giovanni Battista Pittaluga, to seminar participants at the Bank of Spain, the Paris School of Economics Macro Retreat, ESSIM, the University of Genova, the Bank of Finland, and the University of Reading. Gilles Saint‐Paul gratefully acknowledges financial support from CEPREMAP, Paris Sciences Lettres and the PjSE Ecole Universitaire de Recherche under grant grant ANR‐17‐EURE‐0001; and Davide Ticchi from IMT Lucca and Marche Polytechnic University. Publisher Copyright: © 2021 John Wiley & Sons Ltd

PY - 2021

Y1 - 2021

N2 - We develop a political economy theory of the endogenous emergence of fiscal crises based on the idea that the adjustment mechanism to a crisis favors some social groups, that may be induced ex-ante to vote for fiscal policies that are more likely to lead to a crisis. Greater levels of favoritism lead to a higher public debt and more frequent crises, as well as to higher public expenditure, if the favored group is large enough. We provide conditions under which the favored group strategically favors a weaker state's fiscal capacity and when constitutional limits on debt raise the utility of all poor.

AB - We develop a political economy theory of the endogenous emergence of fiscal crises based on the idea that the adjustment mechanism to a crisis favors some social groups, that may be induced ex-ante to vote for fiscal policies that are more likely to lead to a crisis. Greater levels of favoritism lead to a higher public debt and more frequent crises, as well as to higher public expenditure, if the favored group is large enough. We provide conditions under which the favored group strategically favors a weaker state's fiscal capacity and when constitutional limits on debt raise the utility of all poor.

KW - entitlements

KW - favoritism

KW - fiscal capacity

KW - fiscal crises

KW - populism

KW - public debt

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DO - 10.1111/ecpo.12175

M3 - Article

AN - SCOPUS:85103214188

JO - Economics and Politics

JF - Economics and Politics

SN - 0954-1985

ER -

Engineering crises: Favoritism and strategic fiscal indiscipline

Abstract

Keywords

ASJC Scopus subject areas

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