Understanding the Emergence of Public Debt

Martin Fochmann, Abdolkarim Sadrieh and Joachim Weimann

No 4820, CESifo Working Paper Series from CESifo

Abstract: We use a controlled laboratory experiment with and without overlapping generations to study the emergence of public debt. Public debt is chosen by popular vote, pays for public goods, and is repaid with general taxes. With a single generation, public debt is accumulated prudently, never leading to over-indebtedness. With multiple generations, public debt is accumulated rapidly as soon as the burden of debt and the risk of over-indebtedness can be shifted to future generations. Debt ceiling mechanisms do not mitigate the debt problem. With overlapping generations, political debt cycles emerge, oscillating with the age of the majority of voters.

Keywords: public debt and taxation; government spending; budget deficit; balanced budget; common pool resources (search for similar items in EconPapers)
JEL-codes: C92 H41 H63 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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