Debt-sensitive Majority Rules

Hans Gersbach, Oliver Grimm and Johannes Gerd Becker

No 7860, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine debt-sensitive majority rules. According to such a rule, the higher a planned public debt, the higher the parliamentary majority required to approve it. In a two-period model we compare debt-sensitive majority rules with the simple majority rule when individuals differ regarding their benefits from public-good provision. We establish the existence of Condorcet winners under debt-sensitive majority rules and derive their properties. We find that equilibrium debt-levels are lower under the debt-sensitive majority rule if preferences regarding public goods are sufficiently heterogeneous and if the impact of debt on future public-good provision is sufficiently strong. We illustrate how debt-sensitive majority rules act as political stabilizers in the event of negative macroeconomic shocks.

Keywords: Debt restriction; Debt-sensitive majority rule; Fiscal policy; Public debt; Public goods; Simple majority rule; Voting (search for similar items in EconPapers)
JEL-codes: D72 E61 H41 H63 (search for similar items in EconPapers)
Date: 2010-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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