by Toshihiro Ihori*1 (University of Tokyo)

With growing fiscal deficits income growth caused by political efforts may be suspicion because of the public bad nature of privileges that deteriorates the fiscal situation. To avoid the fiscal crisis, the deficit growth must be tuned with consolidation possibilities. Voluntary cooperation with fiscal consolidation serves as overall public goods, alleviating the increasing fiscal deficit. By incorporating the optimizing consolidation behavior of the more concerned and less concerned interest groups with respect to the fiscal consolidation in a political economy, we shall show that income growth caused by political efforts in fact may worsen even the welfare of the less concerned interest groups if the consolidation technology is not efficient relative to that of additional privileges and the number of the less concerned interest groups is large. We shall also explore the paradoxical result of redistribution and finally examine the seemingly paradoxical outcome of subsidizing voluntary consolidation for reducing the fiscal deficit