The Political Economy of Public Debt: A Laboratory Study∗
نویسندگان
چکیده
This paper reports the results from a laboratory experiment designed to study political distortions in the accumulation of public debt. A legislature bargains over the levels of a public good and of district specific transfers in two periods. The legislature can issue or purchase risk-free bonds in the first period and the level of public debt creates a dynamic linkage across policymaking periods. In line with the theoretical predictions, we find that public policies are inefficient and efficiency is increasing in the size of the majority requirement, with higher investment in public goods and lower debt associated with larger majority requirements. Also in line with the theory, we find that debt is lower when the probability of a negative shock to the economy in the second period is higher, evidence that debt is used to smooth consumption. JEL Classification: D71, D72, C78, C92, H41, H54
منابع مشابه
Designing a rule-based fiscal framework in Iran economy
The existence of a structural budget deficit in Iranian economy and the lack of fiscal discipline have raised concerns about the financial stability of governments among economists. In recent decades, fiscal rules have been considered as a way to establish fiscal discipline and financial sustainability of governments around the world. In this regard, the present study seeks to design a fiscal f...
متن کاملForeign vs. domestic public debt and the composition of government expenditure: A political-economy approach
We consider an economy in which a political-support maximizing government takes into account different generations’ preferences when deciding how much to borrow abroad and how much to spend on public consumption and investment. We show that, in equilibrium, the government’s choices are shaped by three parameters: the effect of government spending on output, the expected output costs of a defaul...
متن کاملThe 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...
متن کاملInfluence of some Macroeconomic Indicators on Government Debt (Case of Ukraine)
The aim of the study is to develop theoretical and methodological foundations, scientific and practical recommendations for improving the management and evaluation of public debt in Ukraine. The methodological foundations of the study are a systematic approach to the analysis of the relationship of financial phenomena and processes, creative reflection on the works of Ukrainian and foreign scie...
متن کاملFinancial globalization and the raising of public debt
During the last three decades the stock of government debt has increased in most developed countries. During the same period international capital markets have been liberalized. In this paper we develop a two-country political economy model with incomplete markets and endogenous government borrowing and show that countries choose higher levels of public debt when financial markets are internati...
متن کامل