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The Political Power of the Owners of Public Debt

Author

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  • Di Gioacchino, Debora

    ()

  • Ginebri, Sergio
  • Sabani, Laura

Abstract

We develop a two period model to investigate what makes the promise to repay public debt credible. We explor a political solution excluding any role for long-run reputational arguments. There are two sources of heterogeneity among individuals: wealth and income. Differences in asset holdings determine individuals’ preferences over monetary policy; differences in incomes determine individuals’ preferences over fiscal policy. The bi-dimensionality of the political choice plays a fundamental role. We show, in fact, that political outcomes on the dimension perceived as less relevant might be decided by minority groups. In this sense, the very fact of issuing public debt creates a constituency in favour of repaying it and, under certain conditions, this constituency might be winning even though it is a minority group.

Suggested Citation

  • Di Gioacchino, Debora & Ginebri, Sergio & Sabani, Laura, 2003. "The Political Power of the Owners of Public Debt," Economics & Statistics Discussion Papers esdp03006, University of Molise, Dept. EGSeI.
  • Handle: RePEc:mol:ecsdps:esdp03006
    as

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    References listed on IDEAS

    as
    1. Di Gioacchino, Debora & Ginebri, Sergio & Sabani, Laura, 2000. "Bribery and Public Debt Repudiation," Public Choice, Springer, vol. 105(3-4), pages 303-321, December.
    2. Timothy Besley & Stephen Coate, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 85-114.
    3. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
    4. Debora Di Gioacchino & Sergio Ginebri & Laura Sabani, 2004. "Political support for anti-inflationary monetary policy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 187-200.
    5. Besley, Timothy & Coate, Stephen, 2008. "Issue Unbundling via Citizens' Initiatives," Quarterly Journal of Political Science, now publishers, vol. 3(4), pages 379-397, December.
    6. Tabellini, Guido, 1991. "The Politics of Intergenerational Redistribution," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 335-357, April.
    7. Dixit, Avinash & Londregan, John, 2000. "Political Power and the Credibility of Government Debt," Journal of Economic Theory, Elsevier, vol. 94(1), pages 80-105, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    public debt; credibility; political process; heterogeneity; interest groups.;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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