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A Positive Theory of Fiscal Deficits and Government Debt

Alberto Alesina and Guido Tabellini
The Review of Economic Studies
Vol. 57, No. 3 (Jul., 1990), pp. 403-414
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2298021
Page Count: 12
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A Positive Theory of Fiscal Deficits and Government Debt
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Abstract

This paper considers an economy in which policymakers with different preferences alternate in office as a result of elections. Government debt is used strategically by each policymaker to influence the choices of his successors. If different policymakers disagree about the desired composition of government spending between two public goods, the economy exhibits a deficits bias; that is, debt accumulation is higher than it would be with a social planner. The equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re-elected.

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