Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/19020 
Year of Publication: 
2005
Series/Report no.: 
CESifo Working Paper No. 1556
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Many countries, especially developing ones, follow procyclical fiscal policies, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less-than-benevolent government to appropriate rents. Voters have incentives similar to the "starving the Leviathan" classic argument, and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well. We test this argument against more traditional explanations based purely on borrowing constraints, with a reasonable amount of success.
JEL: 
H6
H3
Document Type: 
Working Paper
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