“…Methodologically, we build on the framework developed in the literature on dynamic political economy, e.g., , Krusell and Rios-Rull (1999), Hassler et al (2003, 2005, Corbae et al (2009), Bai andLagunoff (2011a), Song et al (2011) as well as Song (2012). Secondly, this paper complements the literature on procyclical fiscal policy in developing countries that focuses on international aspects such as sovereign borrowing constraints and dysfunctional democracy (see Alesina et al, 2008;Ilzetzki andVegh, 2008, as well as Ilzetzki, 2011, for an overview).…”