Public debt and the political economy of reforms

Christoph Esslinger and Pierre Boyer

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: We consider a model of redistributive politics in which politicians have the possibility to raise some debt and to implement a pie-increasing reform, i.e. a reform creating a net increase in the total taxable endowment. The reform benefits occur in the future and the reform costs have to be paid today, but both benefits and costs can be perfectly redistributed across voters in the period in which they occur. Voters are perfectly forward-looking and ex-ante homogeneous, and politicians are purely office-motivated. As main result, we show that a limit on debt that is sufficiently more restrictive than the natural debt limit will prevent the implementation of the reform. Such a debt limit forces the reforming candidate to pursue an overly egalitarian strategy of redistribution making it possible for a non-reforming candidate to use his better targeting capacity to win a majority of voters.

JEL-codes: C72 D72 D78 H63 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Public Debt and the Political Economy of Reforms (2024)
Working Paper: Public debt and the political economy of reforms (2022)
Working Paper: Public Debt and the Political Economy of Reforms (2021)
Working Paper: Public debt and the political economy of reforms (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:113107

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