Arbeitspapier
The Limits of Political Compromise: Debt Ceilings and Political Turnover
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.
- Sprache
-
Englisch
- Erschienen in
-
Series: CESifo Working Paper ; No. 6429
- Klassifikation
-
Wirtschaft
Policy Objectives; Policy Designs and Consistency; Policy Coordination
Fiscal Policy
Fiscal Policies and Behavior of Economic Agents: General
National Debt; Debt Management; Sovereign Debt
- Thema
-
debt limits
political turnover
efficient policies
fiscal rules
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Cunha, Alexandre B.
Ornelas, Emanuel
- Ereignis
-
Veröffentlichung
- (wer)
-
Center for Economic Studies and ifo Institute (CESifo)
- (wo)
-
Munich
- (wann)
-
2017
- Handle
- Letzte Aktualisierung
-
10.03.1970, 08:24 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Cunha, Alexandre B.
- Ornelas, Emanuel
- Center for Economic Studies and ifo Institute (CESifo)
Entstanden
- 2017
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