Electoral and Partisan Manipulation of Public Debt in Developed Democracies , 1956 - 90 First Draft : 16 August 1998

Abstract: Theoretical literature seeking to explain public-debt accumulation exploded in recent years as debt crises emerged in many nations. However, empirical evaluation of political-economy theories has lagged that of basic economic-conditions models. This paper joins those beginning to redress the imbalance, operationalizing and evaluating standard electoral and partisan budget-cycles arguments and their modern, rational-expectations-strategic variants. The evidence strongly suggests modification of the former and flatly rejects the latter. Electoral budget-cycles exist, but their timing is different than usually assumed. Partisan debt-effects also exist, but they run in commonly expected directions (left-deficits, right-surpluses) only when incumbents’ perceived risk of replacement by ideological competitors is high. They run in opposite directions when such replacement risk is low. The pattern contradicts recent rational-strategic models but perhaps suggests an alternative, equally rational-strategic, logic for partisan manipulation of the budget.