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The Political Power of the Owners of Public Debt

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  • Debora Di Gioacchino

    ()
    (Università «La Sapienza», Roma)

  • Sergio Ginebri

    ()
    (Università del Molise, Campobasso)

  • Laura Sabani

    ()
    (Università di Firenze)

Abstract

We develop a two period model to investigate what makes the promise to repay public debt credible. We explore a political solution excluding any role for long-run reputational arguments. There are two sources of heterogeneity among individuals: wealth and income. Differences in asset holdings determine individuals’ preferences over monetary policy; differences in incomes determine individuals’ preferences over fiscal policy. The bidimensionality of the political choice plays a fundamental role. We show, in fact, that political outcomes on the dimension perceived as less relevant might be decided by minority groups. In this sense, the very fact of issuing public debt creates a constituency in favour of repaying it and, under certain conditions, this constituency might be winning even though it is a minority group.

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Bibliographic Info

Article provided by SIPI Spa in its journal Rivista di Politica Economica.

Volume (Year): 93 (2003)
Issue (Month): 1 (January-February)
Pages: 79-118

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Handle: RePEc:rpo:ripoec:v:93:y:2003:i:1:p:79-118

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  1. Tabellini, Guido, 1991. "The Politics of Intergenerational Redistribution," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(2), pages 335-57, April.
  2. Persson, T. & Tabellini, G., 1997. "Political Economics and Macroeconomic Policy," Papers, Stockholm - International Economic Studies 630, Stockholm - International Economic Studies.
  3. Tim Besley & Stephen Coate, . ""An Economic Model of Representative Democracy''," CARESS Working Papres, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences 95-02, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  4. Besley, Timothy J. & Coate, Stephen, 2001. "Issue Unbundling via Citizens' initiatives," CEPR Discussion Papers 2857, C.E.P.R. Discussion Papers.
  5. Debora Di Gioacchino & Sergio Ginebri & Laura Sabani, 2004. "Political support for anti-inflationary monetary policy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 187-200.
  6. Dixit, Avinash & Londregan, John, 2000. "Political Power and the Credibility of Government Debt," Journal of Economic Theory, Elsevier, vol. 94(1), pages 80-105, September.
  7. Di Gioacchino, Debora & Ginebri, Sergio & Sabani, Laura, 2000. " Bribery and Public Debt Repudiation," Public Choice, Springer, vol. 105(3-4), pages 303-21, December.
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