The Political Economy of Public Debt: A Laboratory Study

Marco Battaglini, Salvatore Nunnari and Thomas Palfrey

No 11357, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Public debt; Laboratory experiment (search for similar items in EconPapers)
JEL-codes: H63 H72 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-exp and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://cepr.org/publications/DP11357 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: The Political Economy of Public Debt: A Laboratory Study (2020)
Working Paper: The Political Economy of Public Debt: A Laboratory Study (2018)
Working Paper: The Political Economy of Public Debt: A Laboratory Study (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:11357

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP11357
orders@cepr.org

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by (repec@cepr.org).