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Habit formation, strategic extremism, and debt policy

Author

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  • Egil Matsen
  • �ystein Th�gersen

Abstract

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 reelection. Comparing to a benchmark case of a certain reelection, we demonstrate that the incumbent�s optimal policy features both a more polarized allocation between the alternative public goods and a debt bias.

Suggested Citation

  • Egil Matsen & �ystein Th�gersen, 2010. "Habit formation, strategic extremism, and debt policy," IEW - Working Papers 468, Institute for Empirical Research in Economics - University of Zurich.
    • Handle: RePEc:zur:iewwpx:468
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    Cited by:

    1. Pitsoulis, Athanassios & Siebel, Jens Peter, 2009. "Zur politischen Ökonomie von Defiziten und Kapitalsteuerwettbewerb," Discourses in Social Market Economy 2009-13, OrdnungsPolitisches Portal (OPO).
    2. repec:ejw:journl:v:12:y:2015:i:2:p:242-259 is not listed on IDEAS

    More about this item

    Keywords

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    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

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