Class conflict, fiscal policy, and wage-led demand: A model of Kalecki’s Political Business Cycle

Optimal Contingent Fiscal Policy in a Business Cycle Model

The indeterminacy of the optimal fiscal policy that emerges in a stochastic setting has been characterized by Zhu (1992) and Chari, Christiano and Kehoe (1994). There are infinite paths of ex-post capital income tax rates and state-contingent debt return supporting the optimal allocations of consumption, investment and leisure. The main goal of this paper is to introduce identification constrai...

Cleavage Patterns and Social Conflict: A Theory with an Application to Political Conflict over Fiscal Policy

Fiscal policy over the real business cycle: A positive theory

This paper presents a political economy theory of the behavior of fiscal policy over the business cycle. The theory predicts that, in both booms and recessions, fiscal policies are set so that the marginal cost of public funds obeys a submartingale. In the short run, fiscal policy can be pro-cyclical with government debt spiking up upon entering a boom. However, in the long run, fiscal policy i...

Fiscal Policy over the Real Business Cycle: A Positive Theory1

This paper explores the implications of the political economy model of Battaglini and Coate (2008) for the behavior of fiscal policy over the business cycle. The model predicts that fiscal policy is counter-cyclical with debt increasing in recessions and decreasing in booms. Public spending increases in booms and decreases during recessions, while tax rates decrease during booms and increase in...

Generational conflict, fiscal policy, and economic growth

Worldwide, dependency ratios are forecast to increase dramatically in the next 50 years. A great deal of attention has been devoted to understanding the changes in fiscal policies that ‘‘must’’ take place to accommodate these changes and maintain desirable rates of economic growth. In contrast, less effort has been concentrated on studying the fiscal shifts that will endogenously result from de...