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The Political Economy of Debt and Entitlements

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Abstract

We present a political-economic model of total government obligations-debt and entitlements. In our model, both are tools by which temporarily powerful groups extract resources from groups that will be powerful: debt transfers resources across periods; entitlements directly target the future allocation of resources. We prove four results. First, debt and entitlements are strategic substitutes: constraining one increases the other. Second, it is sometimes beneficial to relax a constraint on debt, and always to limit but not eliminate entitlements. Third, debt and entitlements respond in opposite ways to political instability. Finally, polarization can cause joint growth of debt and entitlements.

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  • Laurent Bouton & Alessandro Lizzeri & Nicola Persico, 2018. "The Political Economy of Debt and Entitlements," Working Papers gueconwpa~18-18-16, Georgetown University, Department of Economics.
    • Handle: RePEc:geo:guwopa:gueconwpa~18-18-16
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    3. Schilling, Linda, 2020. "On the (Ir)relevance of Firm Size for Bail-outs under Voter-Neutrality: The Case of Foreign Stakeholders," CEPR Discussion Papers 15508, C.E.P.R. Discussion Papers.
    4. Facundo Piguillem & Alessandro Riboni, 2021. "Fiscal Rules as Bargaining Chips [Growth in the Shadow of Expropriation]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(5), pages 2439-2478.
    5. Gersbach, Hans & Muller, Philippe & Tejada, Oriol, 2019. "Costs of change and political polarization," European Journal of Political Economy, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    Government debt; entitlement programs; fiscal rules; political economy;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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