This paper argues that budget deficits can be used strategically by the government to improve its chance of reelection. Under progressive wealth taxation, Ricardian equivalence fails if individuals have different levels of wealth because a budget deficit redistributes resources from individuals...

Large and growing levels of public debt in the United States, United Kingdom, Japan and the Euro Area raise new interest in the cross-country effects of a large open economy's deficits. We consider a dynamic optimising model with costly tax collection and exogenously given public spending and...