The Positive Political Economy of Public Debt: An Empirical Examination of the OECD Postwar Experience

Theoretical literature seeking to explain public-debt accumulation exploded in recent years as debt crises emerged in many nations. Empirical evaluation of political-economy theories has lagged that of the standard taxsmoothing/economic-conditions model (0). This paper joins recent work aiming to redress that imbalance, operationalizing and testing nine positive-political-economy-of-public-debt theories, several for the first time. Theories regarding (1a) influence and (1b) veto-actor conceptions of government fractionalization and polarization and delayed stabilization, (2) wealth and age distributions and the interand intra-generational-transfer roles of debt, (3a) electoral and (3b) partisan budget-cycles, (4) strategic debt-manipulation to alter future governments’ fiscal incentives, (5) distributive politics and multiple constituencies, (6) fiscal-structure complexity and fiscally-illuded voters, and (7) central bank autonomy and conservatism as a debt-financing constraint, all receive empirical attention. The historical record of 21± developed democracies over 40± years strongly supports 0, 1b, 3a, and 6, unequivocally favoring 1b over 1a. Evidence for 3b, 5, and 7 is weaker or more mixed, and 2 and 4 receive no support. In most cases, the results suggest interesting avenues for further theoretical development and refinement. Shared exposure to adverse economic shocks in the 1970s and changing policy emphases toward anti-inflationary monetary policy in the 1980s emerge as especially important in explaining the commonalities across country-times; fractionalized governments were critical in the most extreme cases of exploding debt; and macro-political institutions like presidentialism and central bank autonomy and conservatism were also central to persistent cross-national differences.