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Public debt rule breaking by time-inconsistent voters

Author

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  • Arawatari, Ryo
  • Ono, Tetsuo

Abstract

This study considers how present-biased preferences influence public debt policy when a violation of debt rules is possible. To address this issue, the study extends the framework of Bisin, Lizzeri, and Yariv (American Economic Review 105, (2015), 1711--1737) by allowing for rule breaking with extra costs, and we show that rule breaking occurs when a country exhibits a strong present bias. We further extend the model by introducing a political process for determining the debt rule, and we show that a polarization of debt rules emerges between countries with high and low degrees of present bias.

Suggested Citation

  • Arawatari, Ryo & Ono, Tetsuo, 2019. "Public debt rule breaking by time-inconsistent voters," MPRA Paper 96589, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:96589
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    File URL: https://mpra.ub.uni-muenchen.de/96589/1/MPRA_paper_96589.pdf
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    References listed on IDEAS

    as
    1. Marina Halac & Pierre Yared, 2018. "Fiscal Rules and Discretion in a World Economy," American Economic Review, American Economic Association, vol. 108(8), pages 2305-2334, August.
    2. Azzimonti, Marina & Battaglini, Marco & Coate, Stephen, 2016. "The costs and benefits of balanced budget rules: Lessons from a political economy model of fiscal policy," Journal of Public Economics, Elsevier, vol. 136(C), pages 45-61.
    3. repec:eee:jmacro:v:57:y:2018:i:c:p:1-14 is not listed on IDEAS
    4. Barseghyan, Levon & Battaglini, Marco, 2016. "Political economy of debt and growth," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 36-51.
    5. Ono, Tetsuo & Uchida, Yuki, 2018. "Human capital, public debt, and economic growth: A political economy analysis," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 1-14.
    6. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2012. "Rotten Parents and Disciplined Children: A Politico‚ÄźEconomic Theory of Public Expenditure and Debt," Econometrica, Econometric Society, vol. 80(6), pages 2785-2803, November.
    7. Alberto Bisin & Alessandro Lizzeri & Leeat Yariv, 2015. "Government Policy with Time Inconsistent Voters," American Economic Review, American Economic Association, vol. 105(6), pages 1711-1737, June.
    8. Wang, Mei & Rieger, Marc Oliver & Hens, Thorsten, 2016. "How time preferences differ: Evidence from 53 countries," Journal of Economic Psychology, Elsevier, vol. 52(C), pages 115-135.
    9. Arai, Real & Naito, Katsuyuki & Ono, Tetsuo, 2018. "Intergenerational policies, public debt, and economic growth: A politico-economic analysis," Journal of Public Economics, Elsevier, vol. 166(C), pages 39-52.
    10. Cukierman, Alex & Meltzer, Allan H, 1989. "A Political Theory of Government Debt and Deficits in a Neo-Ricardian Framework," American Economic Review, American Economic Association, vol. 79(4), pages 713-732, September.
    11. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
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    More about this item

    Keywords

    Debt ceilings; Present bias; Public debt.;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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