The Elasticity of Intertemporal Substitution: A Tool to Constrain Profligate Government Spending ()
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.
Share and Cite:
Paleologou, S. (2020) The Elasticity of Intertemporal Substitution: A Tool to Constrain Profligate Government Spending.
Theoretical Economics Letters,
10, 607-619. doi:
10.4236/tel.2020.103039.
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