International coordination of debt rules with time‐inconsistent voters

Abstract

In this study, we investigate the international coordination of debt rules in an economy consisting of a large number of countries with varying degrees of present bias. A case whereby each country sets its own uncoordinated debt rules is compared with a case whereby all countries have common coordinated debt rules. Countries with weak present-biased preferences increase their debt issuance and suffer from welfare losses by participating in coordination. In contrast, countries with strong present-biased preferences reduce their debt issuance and can enjoy welfare improvement by participating in coordination. The contrasting results suggest the possibility that the former have little incentive to follow the coordinated rule.

Temptation and self‐control for the impure benevolent planner: The case of heterogeneous discounting

“…For example,Arawatari and Ono (2023) consider that individual voters have time-inconsistency issues due to hyperbolic discounting, while there is heterogeneity in degrees of inconsistency, and the society is to choose a debt rule under difference in desires for a commitment device (smaller menu). Individual voters' time-inconsistency and preference for commitment implied therein are reflected in their preferences over menus.…”