Why a Stubborn Conservative would Run a Deficit: Policy with Time- Inconsistent Preferences

Persson, Torsten; Svensson, Lars E. O.

doi:10.2307/2937850

Cited by 939 publications

(624 citation statements)

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“…We observe an increase in the 29 We do not include 1998 in our benchmark speci cation because we use lagged independent variables in various robustness checks of the model. 30 The number of cross section units decreased from 396 to 291 in NRW and from 2,056 to 1,776 in Bavaria.…”

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confidence: 99%

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Race to the debt trap? — Spatial econometric evidence on debt in German municipalities

Borck

Fossen

Freier

et al. 2015

Regional Science and Urban Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in

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confidence: 99%

“…However, voters fail to punish local mayors as public debt is also increased above the average. 2 Another model of strategic debt is developed by Persson and Svensson (1989). Their mechanism builds on the idea that right and left governments typically di er in the amount of desired spending.…”

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confidence: 99%

Race to the debt trap? — Spatial econometric evidence on debt in German municipalities

Borck

Fossen

Freier

et al. 2015

Regional Science and Urban Economics

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“…For instance, Cukierman and Meltzer (1989) and Song, Storesletten, and Zilibotti (2012) argue that debt is then a tool to redistribute resources across generations. Persson and Svensson (1989); Alesina and Tabellini (1990);and Alesina and Tabellini (1990) argue that debt is a way to tie the hands of future governments that have different preferences from the current one. In Alesina and Tabellini (1990) voters choose the composition of public spending in an environment where the median voter theorem applies.…”

Section: Related Literaturementioning

confidence: 99%

Government Policy with Time Inconsistent Voters

Bisin

Lizzeri

Yariv

2015

American Economic Review

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This paper presents an analysis of how economic policy responds to the political demands of agents with self-control problems. The main result is that collective action may generate an amplification of individual self-control problems leading to excessive government debt. The analysis also provides some cautionary discussion of commonly advocated policies (such as facilitating investment in illiquid assets) in a world where government debt responds to the portfolios of private individuals.An important and influential approach to government policy has grown out of the field of behavioral economics. A number of contributors to this area argue that some form of government policy interventions can be justified by "paternalistic attitudes" even in cases outside the realm of the textbook approach to public policy, i.e., even absent externalities, public goods, and asymmetric information. 1 Within behavioral economics, a substantial body of work discusses self-control problems and their consequences within a consumption-savings environment. Some argue that there are inefficiently low savings when individuals are left to their own devices (e.g., Camerer, Loewenstein, and Rabin 2003;Hurst 2003;and Madrian 2012). These insights have been used for justifying paternalistic interventions by governments aimed at 1 See, for instance, Camerer, Loewenstein, and Rabin

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“…In all regressions, the probability of being voted out at the next election, by itself or interacted with the unified government dummy, remains insignificant. Table 9 presents the VAR estimations in levels for the TA and PS models; the left panel includes the divided government dummy (DIVID) and the hypothesis that opinion polls and the divided government dummy do not Granger-cause budget deficits 12 For the PS model-Republican presidencies, it is not possible to control for divided governments. However, casual time-series comparison over the period 1960-96 shows that the largest budget deficits, even after adjusting for the business cycle, have been run under Republican presidencies.…”

Section: United Statesmentioning

confidence: 99%

“…Two important contributions by Tabellini and Alesina [13] (TA henceforth) and Persson and Svensson [12] (PS henceforth) argue that budget deficits have a strategic explanation. TA argue that voters have heterogeneous preferences in terms of what public good the government should provide.…”

Section: Introductionmentioning

confidence: 99%

Are Budget Deficits Used Strategically?

Lambertini

2003

SSRN Journal

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This paper tests empirically the strategic explanation of budget deficits suggested by Tabellini and Alesina [13] and Persson and Svensson [12]. Tabellini and Alesina suggest that governments with different political orientation provide different public goods. The model predicts that: a) public good provision follows a political pattern; b) the incumbent that anticipates her defeat at the next election runs budget deficits to tie the hands of the future government. Persson and Svensson suggest that liberal governments prefer more public good provision than conservative ones. The model predicts that: a) the conservative (liberal) incumbent that anticipates her defeat at the next election runs budget deficits (surpluses); b) budget imbalances have a political color. Using U.S. and pooled data for sixteen OECD countries, we find little evidence that the incumbent's probability of being voted out of office explains budget deficits, that the provision of public goods follows a political pattern or that budget imbalances have a political color. JEL Classification Code: E61, E62, H62

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Why a Stubborn Conservative would Run a Deficit: Policy with Time- Inconsistent Preferences

Cited by 939 publications

References 2 publications

Race to the debt trap? — Spatial econometric evidence on debt in German municipalities

Race to the debt trap? — Spatial econometric evidence on debt in German municipalities

Government Policy with Time Inconsistent Voters

Are Budget Deficits Used Strategically?

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