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Intergenerational conflict and public sector size and structure: A rationale for debt limits?

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  • Andersen, Torben M.

Abstract

How do budget rules influence the size and structure of the public sector? This question is considered in an overlapping generations political economy model. The different horizons of agents influence their voting behaviour and lead to excessive deficit financing and debt accumulation, reducing welfare of all subsequent generations. Along an equilibrium trajectory with increasing debt, the tax burden increases and public sector activities are crowded out due to the increasing costs of debt servicing. A debt ceiling may halt this process leading to less debt, more public consumption and higher welfare.

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  • Andersen, Torben M., 2019. "Intergenerational conflict and public sector size and structure: A rationale for debt limits?," European Journal of Political Economy, Elsevier, vol. 57(C), pages 70-88.
    • Handle: RePEc:eee:poleco:v:57:y:2019:i:c:p:70-88
    DOI: 10.1016/j.ejpoleco.2018.07.005
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    Cited by:

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    3. Uchida, Yuki & Ono, Tetsuo, 2021. "Borrowing to finance public investment: a politico-economic analysis of fiscal rules," MPRA Paper 115844, University Library of Munich, Germany, revised 31 Dec 2022.

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