EconPapers    
Economics at your fingertips  
 

The Limits of Political Compromise: Debt Ceilings and Political Turnover

Alexandre Cunha and Emanuel Ornelas

Journal of the European Economic Association, 2018, vol. 16, issue 3, 781-824

Abstract: We study the desirability of limits on the public debt and of political turnover in an economy where incumbents have an incentive to set public expenditures above the socially optimal level due to rent-seeking motives. Parties alternate in office and cannot commit to future policies, but they can forge a political compromise where each party curbs excessive spending when in office if it expects future governments to do the same. In contrast to the received literature, we find that strict limits on government borrowing can exacerbate political economy distortions by making a political compromise unsustainable. This tends to happen when political turnover is limited. Conversely, a tight limit on the public debt fosters a compromise that yields the efficient outcome if political turnover is vigorous. Our analysis thus suggests that to sustain good economic policies, a society needs to restrict either the extent of political turnover or the ability of governments to issue debt, but not both.

Date: 2018
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1093/jeea/jvx025 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Limits of Political Compromise: Debt Ceilings and Political Turnover (2017) Downloads
Working Paper: The Limits of Political Compromise: Debt Ceilings and Political Turnover (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:16:y:2018:i:3:p:781-824.

Access Statistics for this article

More articles in Journal of the European Economic Association from European Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2019-06-10
Handle: RePEc:oup:jeurec:v:16:y:2018:i:3:p:781-824.