Debt-Sensitive Majority Rules

52 Pages Posted: 19 Jul 2010

See all articles by Johannes Gerd Becker

Johannes Gerd Becker

CER-ETH - Center of Economic Research at ETH Zurich

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Research; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Oliver R. Grimm

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Date Written: June 2010

Abstract

We examine debt-sensitive majority rules. According to such a rule, the higher a planned public debt, the higher the parliamentary majority required to approve it. In a two-period model we compare debt-sensitive majority rules with the simple majority rule when individuals differ regarding their benefits from public-good provision. We establish the existence of Condorcet winners under debt-sensitive majority rules and derive their properties. We find that equilibrium debt-levels are lower under the debt-sensitive majority rule if preferences regarding public goods are sufficiently heterogeneous and if the impact of debt on future public-good provision is sufficiently strong. We illustrate how debt-sensitive majority rules act as political stabilizers in the event of negative macroeconomic shocks.

Keywords: debt restriction, debt-sensitive majority rule, fiscal policy, public debt, public goods, simple majority rule, voting

JEL Classification: D72, E61, H41, H63

Suggested Citation

Becker, Johannes Gerd and Gersbach, Hans and Grimm, Oliver R., Debt-Sensitive Majority Rules (June 2010). CEPR Discussion Paper No. DP7860, Available at SSRN: https://ssrn.com/abstract=1640382

Johannes Gerd Becker (Contact Author)

CER-ETH - Center of Economic Research at ETH Zurich ( email )

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HOME PAGE: http://www.cer.ethz.ch/mip

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Research ( email )

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IZA Institute of Labor Economics

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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

Oliver R. Grimm

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

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