The Elasticity of Intertemporal Substitution: A Tool to Constrain Profligate Government Spending

Author: Suzanna-Maria Paleologou

ABSTRACT
We construct a theoretical model to explain profligate electoral fiscal behaviour and to provide a tool, namely the estimated elasticity of intertemporal substitution, for the fiscal authorities to detect and timely constrain such behaviour to promote fiscal prudence. The key is to obtain data on the incumbent party preferred sequence of public consumption levels over time. The model frames this case using a CES utility function and provides one possible mechanism to explain why there are so many examples in the empirical literature that find insignificant electoral biases in fiscal variables.

Source:

Journal: Theoretical Economics Letters
DOI: 10.4236/tel.2020.103039(PDF)
Paper Id: 101020

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