Political frictions and public policy outcomes

A model of fiscal policy with political frictions. * Political instability leads to more public debt. * Public rent-seeking leads to more government spending. * Evaluate the importance of political frictions in explaining the fiscal data. We study the role of political frictions in public policy outcomes. We propose a simple model of fiscal policy that combines a lack of commitment by the government, political turnover, and another political friction that can be interpreted either as political polarization or as public rent-seeking. We show that political turnover increases public debt levels,... Mehr ...