Redistributive Politics and Government Debt in a Borrowing-constrained Economy
AbstractWe develop a two-period, three-class of income model where low-income agents are borrowing constrained because of capital market imperfections, and where redistributive expenditure is financed by tax and government debt. When the degree of capital market imperfection is high, there is an ends-against-the-middle equilibrium where the constrained low-income and the unconstrained high-income agents favor low levels of government debt and redistributive expenditure; these agents form a coalition against the middle. In this equilibrium, the levels of government debt and expenditure are below the efficient levels, and the spread of income distribution results in a lower debt-to-GDP ratio.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 11-02-Rev.
Length: 44 pages
Date of creation: Jan 2011
Date of revision: Sep 2011
Government debt; Borrowing constraints; Voting; Structure-induced equilibrium; Income inequality.;
Other versions of this item:
- Ryo Arawatari & Tetsuo Ono, 2011. "Redistributive Politics and Government Debt in a Borrowing-constrained Economy," Discussion Papers in Economics and Business 11-02, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
- Ryo Arawatari & Tetsuo Ono, 2011. "Redistributive Politics and Government Debt in a Borrowing-constrained Economy," Discussion Papers in Economics and Business 11-02-Rev.2, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised May 2012.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-22 (All new papers)
- NEP-POL-2011-09-22 (Positive Political Economics)
- NEP-PUB-2011-09-22 (Public Finance)
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