Author: Nouha Bougharriou
This paper surveys the recent political economy literature on fiscal policy with a focus on public debt. We provide theoretical discussions on the political and institutional factors shaping fiscal policy. The literature suggests that the opportunistic and ideological behavior of politicians, the conflicts of interest among political parties, and the distribution of debt burden across governments and generations may all lead to excessive public debt. However, many studies emphasize the role of budgetary institutions in promoting fiscal discipline. More specifically, adopting fiscal rules, improving fiscal transparency, centralizing the budget process, and creating an independent fiscal authority are considered as institutional solutions to address excessive deficits and debts.