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Coordinating Intergenerational Redistribution and the Repayment of Public Debt

Author

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  • Christoph March
  • Robert K. von Weizsäcker

Abstract

Is there a link between public debt and wealth inequality? Could government bondholders use intra-generational redistribution strategically to make the repayment of debt politically viable? Using a two-generations game-theoretic model, we identify coordination and divide-and-conquer as key factors. By coordinating their bond investments, the old generation may secure a majority favoring debt repayment. As a consequence, coordination mediates the impact of wealth inequality on public debt. Furthermore, ease of coordination offers another compelling reason why declining population growth fosters the accumulation of public debt. We test our model in a laboratory experiment and confirm the central predictions.

Suggested Citation

  • Christoph March & Robert K. von Weizsäcker, 2016. "Coordinating Intergenerational Redistribution and the Repayment of Public Debt," CESifo Working Paper Series 6075, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6075
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    References listed on IDEAS

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    More about this item

    Keywords

    government debt; intergenerational conflict; voting; experimental economics;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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