Norges Bank

Working Paper

The political economy of fiscal deficits and government production

Author:
by Gisle James Natvik
Series:
Working Paper
Number:
7/2009

Abstract:

This paper analyzes a framework where policymakers decide how to spend public resources on physical capital and labor in order to produce two public goods. Candidate policymakers disagree about which goods to produce, and may alternate in office due to elections. When capital and labor are complementary inputs to the production of public goods, the anticipation of political turnover reduces public savings in physical capital rather than financial assets. Political turnover renders the stock of physical capital for public production too low and inefficiently combined with labor.

Norges Bank’s working papers present research projects and reports that are generally not in their final form. Other analyses by Norges Bank’s economists are also included in the series. The views and conclusions in these documents are those of the authors.

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ISSN 1502-8190 (online)

Published 29 April 2009 15:46
Published 29 April 2009 15:46