Channels, Spring 2018

Channels • 2018 • Volume 2 • Number 2 Page 39 greater growth than makes sense on orthodox economic lines. 138 Tanzi further argues that intentional misperception of economic conditions can lead to continual debt financing, while Keynes himself saw debt financing as limited to times of severe recession to be offset during periods of growth. 139 Trends in public finance are dangerous as a result of poor theoretical assumptions, according to Tanzi. 140 These critiques are similar to those of Buchanan in that they focus on the significance of theoretical frameworks and the incentives of political actors. Indeed, Tanzi cites Buchanan and Paul Leroy Beaulieu whose work was fundamental to Buchanan’s own foray Public Principles of Public Debt . 141 Another current author whose work is more aligned with Buchanan is Alberto Alesina. In one article, Alesina begins by stating “Fiscal policy is the area of macroeconomic policy most directly intertwined with politics.” 142 This is certainly reminiscent of Buchanan’s approach and is a strong contrast with other current authors tacking away from including political context in public finance analysis. Like many other recent papers, Barro’s model of debt issue is of significant importance to Alesina, but, rather than taking it for granted, his paper seeks to examine whether or not the evidence of debt issue aligns with the model. 143 Given that the data seems to align only imperfectly with previous models, Alesina moves to consider different institutional contexts, arguments, and models which may provide an explanation. The lengthy discussion on balanced budget rules and other forms of budget institutions flows similarly to Buchanan’s argumentation, although not drawing on it directly in most cases. However, when considering questions of “fiscal illusion” and the “origin of excessive deficit” that Alesina’s models find, he directly references Buchanan, often with remarks to the foundational influence of his work. 144 This application of Buchanan, rather than assuming the models generated by competing theorists, is a strong contribution to the present public finance debate since 2008. A final economist who has completed significant current work on public debt is Laurence Kotlikoff. Much of his work has been focused on developing an understanding of the consequences of the public debt, either in using more appropriate concepts such as the fiscal gap, or in modeling the long-run consequences to fiscal irresponsibility. At the heart of this approach lies the idea of generational accounting, which, “examines the impact that 138 Ibid, 5. “As a result of the new theories, some research in the fiscal area has become more creative and less intuitive or convincing to those who do not share the same paradigm. Paul Krugman,12 and to a more guarded extent Larry Summers and some others, have argued that traditional or orthodox economic rules no longer apply when economies are ‘deeply depressed’ and when ‘liquidity traps’ are present. Some empirical studies have generated results that orthodox economists find highly questionable and hard to accept. The latter have had increasing difficulties in understanding the channels and mechanisms that can create the huge multipliers and claimed large growth outcomes.” 139 Ibid, 5. 140 Ibid, 6. 141 Ibid, 8. 142 Alberto Alesina and Andrea Passalacqua, “The Political Economy of Public Debt,” in preparation for The Handbook of Macroeconomics , First Draft, (March 2015), 1. 143 Ibid, 3-5. 144 Ibid, 3, 11.