DO GOOD OR DO WELL? PUBLIC DEBT MANAGEMENT IN A TWO‐PARTY ECONOMY*

Gian Maria Milesi‐Ferretti
Authors registered in the RePEc Author Service: Gian Maria Milesi-Ferretti ()

Economics and Politics, 1995, vol. 7, issue 1, 59-78

Abstract: Governments facing elections may strategically manipulate policy instruments in order to increase their re‐election chances. The incentives for strategic manipulation are studied in the context of a debt management model, in which two parties with different inflation aversion compete in elections. It is shown that the inflation‐averse party may issue nominal debt in order to make its opponent “look bad” to voters, thus getting closer to the median voter. Nominal debt artificially enlarges the ex‐post inflation tax base, causing higher inflation. Conversely, an inflation‐prone government may issue indexed debt in order to reduce inflation incentives.

Date: 1995
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Citations: View citations in EconPapers (10)

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https://doi.org/10.1111/j.1468-0343.1995.tb00104.x

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Working Paper: Do Good or Do Well? Public Debt Management in a Two-Party Economy (1991)
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