AbstractThis paper illustrates how delayed debt stabilizations can arise in a society without any emerging conflict of interests among its members. We argue that, under a majority voting rule, the economy may generate excessive levels of government spending and larger debts over time,and that this delay is increasing in income inequality. The intuitionfor this result is simple: a majority of citizens may and in delaying stabilizations a way to increase government expenditures, transferring in this way resources from the richest to the poorest citizens in the economy. This process may explain the upward trend and the diffculty to reduce public expenditures, the so called ratchet effect.
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Bibliographic InfoPaper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp513.
Length: 35 pages
Date of creation: 2007
Date of revision:
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Web page: http://www.fe.unl.pt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-18 (All new papers)
- NEP-CDM-2007-06-18 (Collective Decision-Making)
- NEP-POL-2007-06-18 (Positive Political Economics)
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