Does Political Polarization Lead to a Rise in Government Debt?

Insook Lee ()
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Insook Lee: Bay Area International Business School, Beijing Normal University

Hacienda Pública Española / Review of Public Economics, 2022, vol. 241, issue 2, 3-25

Abstract: Existing politico-economic theories offer two mutually conflicting predictions on whether an increase in the degree of political polarization entails a rise or a decline in government debt. This article estimates the effect of political polarization on government debt, utilizing panel data of the OECD countries from 1962 to 2015. The empirical analysis finds that an increase in the degree of political polarization leads to an increase in government debt, which provides supportive evidence for Alesina and Tabellini (1990) and the like. This finding remains the same across different estimation models, without and with instrumenting the explanatory variable of political polarization.

Keywords: Political polarization; Government debt; Governmet spending. (search for similar items in EconPapers)
JEL-codes: D78 E62 H63 (search for similar items in EconPapers)
Date: 2022
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