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Four Budget Deficit Theories in One Model

Author

Listed:
  • Jens Peter Siebel
  • Athanassios Pitsoulis

Abstract

The analysis of many budget deficit theories is too demanding for undergraduate students. This paper illustrates governments' incentives to create budget deficits by means of a simple graphical model. It integrates four budget deficit theories: The theory of the state as Leviathan, two different strategic deficit theories, and the theory of tax competition. These theories are embedded into an illustrative example of political competition between a conservative party and a liberal party. The main pedagogical benefits of the model are its intuitive setup and its waiver of demanding analysis.

Suggested Citation

  • Jens Peter Siebel & Athanassios Pitsoulis, 2011. "Four Budget Deficit Theories in One Model," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center, vol. 11(2), pages 25-32, Fall.
    • Handle: RePEc:mts:jrnlee:v:11:y:2011:i:2:p:25-32
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    File URL: http://frank.mtsu.edu/~jee/2011/3_MS210_pp25to32.pdf
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    References listed on IDEAS

    as
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    2. Torsten Persson & Lars E. O. Svensson, 1989. "Why a Stubborn Conservative would Run a Deficit: Policy with Time-Inconsistent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 325-345.
    3. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, October.
    4. Lockwood, Ben & Philippopoulos, Apostolis & Snell, Andy, 1996. "Fiscal Policy, Public Debt Stabilisation and Politics: Theory and UK Evidence," Economic Journal, Royal Economic Society, vol. 106(437), pages 894-911, July.
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    More about this item

    Keywords

    budget deficit; public debt; teaching; macroeconomics instruction;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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