Budget Deficits and Fiscal Adjustments under Fragmented Decision Making: New Evidence on an Old Discussion

Main Article Content

Panagiotis Palaios

Abstract

The purpose of this paper is to present the existing literature of political explanations for budget deficits and fiscal adjustments. The literature is distinguished initially in two broad categories, namely the effects of conflicts among agents with heterogeneous preferences and institutional effects. At the next stage the category of conflicts among agents is further distinguished in two approaches, namely political stability approach and weak government approach. The existing literature confirms that political instability leads to the strategic use of debt and therefore to higher fiscal deficits. Institutions are proved to contribute positively to the success of fiscal adjustments. However, interest groups with political power and the risk aversion character of politicians imply that fiscal adjustment is usually delayed and more costly.

Keywords:
Budget institutions, fiscal deficit, fiscal policy, political economy, fiscal adjustment.

Article Details

How to Cite
Palaios, P. (2021). Budget Deficits and Fiscal Adjustments under Fragmented Decision Making: New Evidence on an Old Discussion. Asian Journal of Economics, Business and Accounting, 21(2), 85-97. https://doi.org/10.9734/ajeba/2021/v21i230352
Section
Review Article

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