Economic, political and institutional determinants of fiscal deficit

Abstract

This paper seeks basic economic and political causes of instability and rising fiscal deficit. Economic factors that may cause the appearance and increase in the fiscal deficit are: growth of current public spending, launching public investments, tax cuts and weakening financial discipline. The government's policy that is a result of its coalition agreement, everywhere in the world, is the primary factor that causes the formation and growth of the fiscal deficit. The aim is to show that the politically unstable countries with weak institutions are often vulnerable to fiscal shocks, which, in turn, lead to the greater instability in the fiscal deficit.

Keywords

• tax cuts
• fiscal illusion
• intergenerational redistribution of the burden of public debt
• spatial separation of interests
• budgetary institutions