Public Debt and the Political Economy of Reforms

Boyer, Pierre C.; Roberson, Brian; Esslinger, Christoph

doi:10.1257/mic.20220238

Abstract

How do electoral incentives influence the choice to experiment with a policy reform that generates uncertain future benefits? To answer this question, we examine a two-period model of redistributive politics with uncertain policy outcomes involving a mixture of private and public benefits. In equilibrium, we find that the intertemporal tradeoff between current policy costs and future benefits creates an incentive for politicians to use public debt to smooth spending across periods. The higher the share of policy benefits that are in the form of a public good, the higher the level of available debtrelated spending on targeted policies that is necessary.

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Public Debt and the Political Economy of Reforms

Abstract

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