Understanding Public Debt Preferences

Abstract

Surprisingly little is known about voters' public debt preferences on a micro level. This is deplorable, given the importance of the fiscal stability culture in the context of the European public debt crisis. This contribution tests, for a self-designed representative German survey, debt preferences and their determinants. Our results indicate that a Ricardian approach has some importance for explaining individual heterogeneity of consolidation preferences ---emphasizing, for example, the importance of individual credit constraints. However, Ricardian reasoning is not able to give a complete picture. Theories of debt determination that point to societal coordination failures or ideology offer additional explanations with empirical backing. The magnitude of these additional effects is substantial; the size of the trust variable is not smaller than the intergenerational dummy for the presence of children.

The (In)validity of the Ricardian equivalence theorem–findings from a representative German population survey

“…The dataset consists of about 2,000 observations and contains a great deal of information about our respondents, which allows us to evaluate the importance of a number of factors believed to invalidate RET, thereby putting theoretically informed hypotheses to an empirical test. Our specific research design improves upon the existing survey literature on RET, as it avoids serious problems of identification, as encountered by Heinemann and Henninghausen (2012) and Stix (2013), as well as selection biases, possibly affecting the study by Allers et al (1998).…”

“…This finding casts doubt on the validity of the identification scheme put forward by Heinemann and Henninghausen (2012) and Stix (2013), who argue that one can draw conclusions about a Ricardian motive from individual attitudes toward fiscal consolidation and vice versa. In contrast, our results suggest that the share of respondents who actually consume a larger part of their income in response to public debt accumulation is roughly the same across supporters and opponents of fiscal consolidation.…”

“…Utilising survey data from Germany and Austria, respectively, Heinemann and Henninghausen (2012) and Stix (2013) claim to test RET, too. However, we believe that these scholars provide, at best, an indirect test.…”

“…More precisely, RET holds only if the current generation that benefits from deficit spending either (i) has to carry the burden of a future debt reduction or (ii) cares about the welfare of future generations, that is, has a bequest motive. At the individual level, the first point relates to a person's remaining life expectancy, whereas the second appears more relevant for people with children (e.g., Heinemann and Henninghausen, 2012). In the empirical analysis, we use the respondent's age as a proxy for remaining life expectancy and include a dummy variable for respondents with children.…”

The debt brake in the eyes of the German population

“…Hayo and Neumeier (2013), as well as Heinemann and Henninghausen (2012), investigate determinants of individual attitudes toward fiscal consolidation in Germany, Stix (2013) focuses on Austria, and Blinder and Krueger (2004) employ survey data from the United States. However, this strand of the literature evaluates public attitudes toward the ad hoc implementation of fiscal consolidation measures.…”