A ruling party decides each of two periods on the level of public goods which it finances by means of taxation and internal debt. The debt has to be honoured by the government of the second period. Between the two periods elections take place, which may change the ruling party.
The book analyzes the fiscal decision of the first government which aims to maximize the long run utility of its representative voter. Conditions under which the government uses debt strategically in order to stay in power are identified. It is also shown how the fiscal decisions hinge on the populations' political structure and its beliefs about the future government.

Inhalt

1. Introduction.- 2. The Evolution of Public Debt.- . Literature Survey: The Political Economy of the Government Budget.- 3.1 The Tax-Smoothing Theory of the Government Budget.- 3.2 Intergenerational Redistribution.- 3.3 Intragenerational Geographical Redistribution.- 3.4 Government Fragmentation and Duration and the Electoral System.- 3.5 Debt as a Strategic Instrument.- 4. Introduction to the Model.- 4.1 The Model's Time Structure.- 4.2 The Main Novelties of the Model.- 4.3 Further Assumptions of the Model.- 4.4 The Interdependences of the Model.- 5. The Model.- 5.1 The Agents and their Decisions.- 5.2 Solving the Model.- 5.3 Elections and the Economy's Taste-Income Distribution.- 6. The Implications for Fiscal Policy.- 6.1 A General Example.- 6.2 Fiscal Policy in Our Model.- 6.3 The Long Run Utility Function in General Form and its Derivative With Respect to ?.- 6.4 The Optimal Fiscal Policy of an R-Government.- 6.5 The Optimal Fiscal Policy of an L-Government.- 6.6 Uncertainty.- 7. Conclusions.- A. Appendix.- A.1 General Government Net Debt-to-GDP Ratios, 1960-1990.- A.2 From Equation (5.6) to Equation (5.7).- A.3 Total Savings or How to Get Equation(5.9).- A.4 Proof: The Left-Wing Party Sets a Higher Tax Rate, ?2(L) > ?2(R).- A.5 The Variables Relevant for the Model's Political Dimension.- A.5.1 Optimal Individual Savings.- A.5.2 Total Savings.- A.5.3 The Optimal Tax Decision in the Second Period.- A.5.4 An Additional Equation: The Consumers' Budget Constraint.- A.6 The Relationship Between and ?.- A.7 How to Get from Equation (5.14) to Equation (5.15).- A.8 Proof: The Curve of Indifferent Consumers is Decreasing in m or How to Get Equation (5.16).- A.9 Proof: The Indifferent Consumers' Curve's Reaction to Changes in ?.- A.10 Proof: Parties'Reactions when the Debt to Repay Increases.- A.10.1 ?2(·) as a Function of ?.- A.10.2 y2(·) as a Function of ?.- A.11 The Problem of Intersecting ?-Curves.- A.12 The Optimal Levels of Private and Public Goods, and 2.- A.13 The Long Run Utility Function to Be Maximized in Reduced Form.- A.15 The Long Run Utility Functions for the Special Cases of Our Model.- A.16 The Influence of the Beliefs on the Optimal Policy Choice.- B..