01684cas a2200253 a 4500 AALejournalIMF004815 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451866322 1018-5941 BD-DhAAL BD-DhAAL Yakadina, Irina. Politically Optimal Fiscal Policy / Irina Yakadina, Michael Kumhof. Washington, D.C. : International Monetary Fund, 2007. 1 online resource (26 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Why do governments issue large amounts of debt? In what sense and for whom is such a policy optimal? We show that twisting the optimal taxation paradigm produces very reasonable predictions for debt and real interest rates. Adding an extra dimension of uncertainty about the political planning horizon gives rise to a positive and very plausible government debt-to-GDP ratio of about 55 percent in a model that otherwise predicts negative government debt. We quantify the impact of political uncertainty on steady state and business cycle dynamics. We illustrate how populist tax cuts can cause business cycle fluctuations. Mode of access: Internet Kumhof, Michael. IMF Working Papers; Working Paper ; No. 2007/068 Full text available on IMF http://elibrary.imf.org/view/journals/001/2007/068/001.2007.issue-068-en.xml IMF e-Library