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Does public debt secure social peace? A diversionary theory of public debt management

Maxime Menuet, Patrick Villieu and Marcel Voia

Social Choice and Welfare, 2021, vol. 57, issue 3, No 1, 475-501

Abstract: Abstract This study analyzes the strategic use of public debt. Contrary to the classical view that politicians can use public debt to tie the hands of their successors, we show that an incumbent government can take advantage of having tied its own hands before the election with the help of public debt. By doing this, it reduces the basis for future social conflicts and benefits from social peace during its term, which may enhance its chances of being re-elected. In addition, in the case of foreign or external public debt, the incumbent can strategically divert future social conflicts toward a common enemy (foreign creditors). Thus, by increasing public debt before the election, the incumbent can strengthen social cohesion during his/her mandate, both by reducing the basis of internal conflicts and by diverting citizens from internal toward external rent-seeking activities.

Date: 2021
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DOI: 10.1007/s00355-021-01332-z

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