The Positive Political Economy of Public Debt: An Empirical Examination of the OECD Postwar Experience
67 Pages Posted: 17 Jan 2008 Last revised: 25 Jan 2008
Date Written: 2002
The volume of theoretical literature seeking to explain public-debt accumulation has exploded in recent years as debt crises have emerged in many nations. However, empirical evaluation of political-economy theories has, unfortunately, lagged somewhat that of the standard taxsmoothing/economic-conditions model (0). This paper joins those beginning to redress the imbalance, operationalizing and testing eight political-economy-of-public-debt theories: (1a) an influence and (1b) a veto-actor conception of the political fractionalization, polarization, and delayed stabilization argument, (2) the wealth and age distributions and the inter- and intragenerational transfer functions of debt argument, the (3a) electoral and (3b) partisan political budget-cycles argument, (4) the debt as a commitment device argument, (5) the distributive politics and multiple-constituencies argument, (6) the tax-structure and fiscally-illuded voters argument, and (7) the central bank independence as a debt-financing constraint argument. The evidence strongly supports 0, 1b, 3a, and 6, favoring 1b over 1a unequivocally. Evidence regarding 3b, 5, and 7 is weaker and/or more mixed while 2 and 4 are flatly rejected. For these last five, the results suggest interesting avenues for further theoretical advancement and refinement.
Keywords: Public Debt, Public Deficits, Political Economy
JEL Classification: H00, H62, H63
Suggested Citation: Suggested Citation