Redistributive Politics and Government Debt in a Borrowing-constrained Economy

Ryo Arawatari and Tetsuo Ono

No 11-02-Rev.2, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: We develop a two-period, three-class of income model where low-income agents are borrowing constrained because of capital market imperfections, and where redistributive expenditure is financed by tax and government debt. When the degree of capital market imperfection is high, there is an ends-against-the-middle equilibrium where the constrained low-income and the unconstrained high-income agents favor low levels of government debt and redistributive expenditure; these agents form a coalition against the middle. In this equilibrium, the levels of government debt and expenditure might be below the efficient levels, and the spread of income distribution results in a lower debt-to-GDP ratio.

Keywords: Government debt; Borrowing constraints; Voting; Structure-induced equilibrium; Income inequality. (search for similar items in EconPapers)
JEL-codes: D72 H52 H60 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2011-01, Revised 2012-05
New Economics Papers: this item is included in nep-dge, nep-pbe, nep-pol and nep-pub
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http://www2.econ.osaka-u.ac.jp/library/global/dp/1102R2.pdf (application/pdf)

Related works:
Journal Article: REDISTRIBUTIVE POLITICS AND GOVERNMENT DEBT IN A BORROWING-CONSTRAINED ECONOMY (2015)
Working Paper: Redistributive Politics and Government Debt in a Borrowing-constrained Economy (2011)
Working Paper: Redistributive Politics and Government Debt in a Borrowing-constrained Economy (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:1102r2

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