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Quantifying the Impact of Political Frictions on Public Policy

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  • Grechyna, Daryna

Abstract

This paper evaluates the impact of political frictions on fiscal policy in a sample of developed countries. We use a model of fiscal policy that features a lack of commitment by the government, political turnover, and another political friction which can be interpreted either as political polarization or as public rent-seeking. Political turnover increases public debt levels, while political polarization or public rent-seeking lead to higher public spending. We find that political frictions account for 67% of variation in government debt, 36% of variation in government spending, and 24% of variation in taxes in twenty two developed countries.

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  • Grechyna, Daryna, 2015. "Quantifying the Impact of Political Frictions on Public Policy," MPRA Paper 65266, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:65266
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    fiscal policy; political turnover; political polarization; public rent-seeking.;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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