Strategic Use of Debt in Flemish Municipalities

Stijn Goeminne and Carine Smolders ()

The B.E. Journal of Economic Analysis & Policy, 2010, vol. 10, issue 1, 31

Abstract: This paper discusses the literature on strategic use of debt models and tests the seminal models of Persson & Svensson (1989) and Alesina & Tabellini (1990) on a dataset of Flemish municipalities. The literature on strategic deficit and debt behaviour originates from the question whether or not incumbent policymakers run higher budget deficits than they would if they were confident of re-election. In this paper, we introduce a vote function to estimate the probability of electoral defeat and present evidence of strategic debt in line with Persson & Svensson (1989), but only for leftist governments with expected vote percentages below 49%. There is no indication that rightist governments without re-election prospects are sensitive to strategic debt behaviour.

Keywords: strategic debt; expectation of electoral defeat; vote function; Flemish municipalities (search for similar items in EconPapers)
Date: 2010
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DOI: 10.2202/1935-1682.2097

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