Sticky Spending, Sequestration, and Government Debt

Facundo Piguillem and Alessandro Riboni

American Economic Review, 2024, vol. 114, issue 11, 3513-50

Abstract: Once established, government spending programs tend to continue. A commonly held view is that spending inertia leads to unsustainable debt, ultimately requiring fiscal adjustments such as "sequestration." We show that by insuring against political turnover, inertia may reduce politicians' incentives to accumulate debt. However, large preexisting commitments and the prospect of future stabilization can lead to overspending to dilute past administrations' commitments. Finally, we show that political polarization amplifies incentives to prioritize inertial programs, potentially explaining the increased share of mandatory spending in the US budget.

JEL-codes: D72 E62 H61 H63 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Sticky Spending, Sequestration, and Government Debt (2021)
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DOI: 10.1257/aer.20210935

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