Public debt rule breaking by time-inconsistent voters

Ryo Arawatari and Tetsuo Ono

MPRA Paper from University Library of Munich, Germany

Abstract: This study considers how present-biased preferences influence public debt policy when a violation of debt rules is possible. To address this issue, the study extends the framework of Bisin, Lizzeri, and Yariv (American Economic Review 105, (2015), 1711--1737) by allowing for rule breaking with extra costs, and we show that rule breaking occurs when a country exhibits a strong present bias. We further extend the model by introducing a political process for determining the debt rule, and we show that a polarization of debt rules emerges between countries with high and low degrees of present bias.

Keywords: Debt ceilings; Present bias; Public debt. (search for similar items in EconPapers)
JEL-codes: D72 D78 H62 H63 (search for similar items in EconPapers)
Date: 2019-10-16
New Economics Papers: this item is included in nep-pol
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Related works:
Journal Article: Public debt rule breaking by time-inconsistent voters (2021)
Working Paper: Public debt rule breaking by time-inconsistent voters (2020)
Working Paper: Public debt rule breaking by time-inconsistent voters (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:96589

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