We explore the hypothesis that long-term commitments affect the dynamics of government expenditure. With the aid of a simple median-voter model we interpret the pattern of increasing-then-constant tax rates observed in OECD countries in the second half of the last century: persistence of public expenditure and a lower bound on new interventions will push government size upward, and preferences of the electorate put a halt to this growth at some point. In this view, the fiscal policy variable is seen to consist of only a part of the total expenditure, the rest being predetermined by its past level.

Albanese, G., & Modica, S. (2012). Government size, the role of commitments. OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 74(4), 532-546 [10.1111/j.1468-0084.2011.00661.x].

Government size, the role of commitments

MODICA, Salvatore
2012

Abstract

We explore the hypothesis that long-term commitments affect the dynamics of government expenditure. With the aid of a simple median-voter model we interpret the pattern of increasing-then-constant tax rates observed in OECD countries in the second half of the last century: persistence of public expenditure and a lower bound on new interventions will push government size upward, and preferences of the electorate put a halt to this growth at some point. In this view, the fiscal policy variable is seen to consist of only a part of the total expenditure, the rest being predetermined by its past level.
Settore SECS-P/01 - Economia Politica
Settore SECS-P/02 Politica Economica
Albanese, G., & Modica, S. (2012). Government size, the role of commitments. OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 74(4), 532-546 [10.1111/j.1468-0084.2011.00661.x].
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10447/79306
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