Debts and Deficits with Fragmented Fiscal Policymaking

This paper develops a political-economy model of fiscal policy - one in which government resources are a "common property" out of which interest groups can finance expenditures on their preferred items. This setup has striking macroeconomic implications. Transfers are higher than a benevolent planner would choose them to be; fiscal deficits emerge even when there are no reasons for intetemporal smoothing, and in the long run government debts tend to be excessively high; peculiar time profiles for transferscan emerge.