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Why are Stabilizations Delayed?

Alberto Alesina and Allan Drazen
The American Economic Review
Vol. 81, No. 5 (Dec., 1991), pp. 1170-1188
Stable URL: http://www.jstor.org/stable/2006912
Page Count: 19
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Why are Stabilizations Delayed?
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Abstract

When a stabilization has significant distributional implications (e.g., tax increases to eliminate a large budget deficit), socioeconomic groups may attempt to shift the burden of stabilization onto other groups. The process leading to stabilization becomes a "war of attrition," each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden. We solve for the expected time of stabilization in a model of "rational" delay and relate it to several political and economic variables. We motivate this approach and its results by comparison to historical and current episodes.

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