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Public Debt and the Political Economy of Reforms

Pierre Boyer, Christoph Esslinger and Brian Roberson

No 8962, CESifo Working Paper Series from CESifo

Abstract: We develop a two-period model of redistributive politics in which two politicians compete in an election in each period. In the first period, the politicians propose both whether to experiment with an efficient reform with uncertain benefits and choose the amount of public debt. Politicians also allocate pork-barrel spending to voters in each period. We show that allowing politicians to raise debt ensures that the reform is always implemented when the reform’s ratio of private good to public good gains exceeds a threshold, i.e. the reform generates enough private good benefits. This is not the case when the reform’s ratio of private good to public good gains is below this threshold. We also examine hard and a soft debt limits, and find that both limits reduce the political success of the reform. However, at moderate debt levels soft limits dominate hard limits with respect to equilibrium efficiency of reform provision.

Keywords: political competition; public debt; reforms; redistributive politics; debt and spending limits (search for similar items in EconPapers)
JEL-codes: C72 D72 D78 H60 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cdm, nep-mic and nep-pol
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Related works:
Working Paper: Public debt and the political economy of reforms (2022) Downloads
Working Paper: Public debt and the political economy of reforms (2021) Downloads
Working Paper: Public debt and the political economy of reforms (2015) Downloads
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