Engineering crises: Favoritism and strategic fiscal indiscipline

Gilles Saint-Paul, Davide Ticchi, Andrea Vindigni

Research output: Contribution to journalArticlepeer-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 languageEnglish (US)
JournalEconomics and Politics
DOIs
StateAccepted/In press - 2021

Keywords

  • entitlements
  • favoritism
  • fiscal capacity
  • fiscal crises
  • populism
  • public debt

ASJC Scopus subject areas

  • Economics and Econometrics

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