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Habit formation, strategic extremism and debt policy

  • Egil Matsen

    ()

    (Department of Economics, Norwegian University of Science and Technology)

  • Øystein Thøgersen

    ()

    (Department of Economics, Norwegian School of Economics and Business Administration, and CESifo,)

We suggest a probabilistic voting model where voters’ preferences for alternative public goods display habit formation. Current policies determine habit levels and in turn the future preferences of the voters. This allows the incumbent to act strategically in order to influence the probability of re-election. Comparing to a benchmark case of a certain re-election, we demonstrate that the incumbent’s optimal policy features both a more polarized allocation between the alternative public goods and a debt bias.

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File URL: http://www.svt.ntnu.no/iso/WP/2007/7habit_debt_strategic%20111207.pdf
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Paper provided by Department of Economics, Norwegian University of Science and Technology in its series Working Paper Series with number 9007.

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Length: 18 pages
Date of creation: 11 Dec 2007
Date of revision:
Handle: RePEc:nst:samfok:9007
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