Voting on the Budget Deficit: Comment

Ben D. Peletier; Robert Dur; Otto H. Swank

doi:10.1257/aer.89.5.1377

American Economic Review Vol. 89 No. 5 1999

Voting on the Budget Deficit: Comment

Ben D. Peletier¹; Robert Dur²; Otto H. Swank²

¹ J.P. Morgan, Structured Products Group, London, 60 Victoria Embankment, London EC4Y 0JP, United Kingdom. · ² Tinbergen Institute and Research Centre for Economic Policy (Ocfeb), Erasmus University, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands.

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Abstract

In this comment, it is argued that a balanced-budget rule may cause underinvestment. As a consequence, such a rule is not ex ante efficient: in order to achieve the ex ante optimal outcome, it would be necessary to add an extra rule for the level of public investment. Unfortunately, however, such an investment rule is likely to be very difficult to implement in practice. When there are no rules to prevent underinvestment, it is no longer clear whether a balanced-budget rule is beneficial or not. In some cases, the cost of low levels of investment outweigh the benefits of a balanced budget.

DOI: 10.1257/aer.89.5.1377
Volume: 89
Issue: 5
Pages: 1377-1381
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Voting on the Budget Deficit: Comment

Abstract

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