This paper presents a two-party model of fiscal and debt policy in which the parties do not care about policy outcomes when out of office. Unlike other models of this type, our model has predictions that are largely consistent with existing empirical findings about partisan and electoral effects on government expenditure, tax revenue, and debt. It also yields new predictions about how the feedback of fiscal policy on lagged debt may depend on partisan and electoral effects. These new predictions are not rejected by a test of the model on UK data.
|Number of pages||18|
|Journal||The Economic Journal|
|Publication status||Published - Jul 1996|