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

Abstract

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

Franzese, Robert J., The Positive Political Economy of Public Debt: An Empirical Examination of the OECD Postwar Experience (2002). Available at SSRN: https://ssrn.com/abstract=1084130 or http://dx.doi.org/10.2139/ssrn.1084130

Robert J. Franzese (Contact Author)

University of Michigan ( email )

Ann Arbor, MI 48109
United States
734-936-1850 (Phone)
734-764-3341 (Fax)

HOME PAGE: http://www-personal.umich.edu/~franzese/

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