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Republicans, Democrats and Budget Deficits: Fiscal Dynamics in Political Perspective

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  • Tavares, José
  • Pereira, Jaime

Abstract

We use an asymmetric cointegration framework to explore politically motivated fiscal asymmetries in the US, from Eisenhower to Obama. We analyze fiscal dynamics in response to deficits as an asymmetric process, sensitive to partisan and electoral motivations, characterizing the response of Republican and Democratic administrations to budget disequilibria. In a novel approach to empirical fiscal policy, we incorporate narrative data in our partisan framework, in order to to distinguish between responses to automatic and discretionary fiscal changes. We conclude that partisanship is a key factor in the fiscal response to budget disequlibria, with Democrats and Republicans exhibiting distinct corrective behavior. On the other hand, the timing of elections does not seem to be a key determinant of the fiscal response to unsustainable budget deviations.

Suggested Citation

  • Tavares, José & Pereira, Jaime, 2016. "Republicans, Democrats and Budget Deficits: Fiscal Dynamics in Political Perspective," CEPR Discussion Papers 11654, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11654
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    More about this item

    Keywords

    Fiscal dynamics; Asymmetric cointegration approach; Democrats; Republicans;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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