Fragmented Politics and Public Debt

32 Pages Posted: 9 Dec 2016

See all articles by Ernesto Crivelli

Ernesto Crivelli

International Monetary Fund (IMF)

Sanjeev Gupta

International Monetary Fund (IMF) - Fiscal Affairs Department

Carlos Mulas-Granados

Government of the Kingdom of Spain - Economic Bureau of the President

Carolina Correa-Caro

Universidad Central - Economics Department

Date Written: September 2016

Abstract

In this paper, we study the impact of fragmented politics on public debt-in particular, between two consecutive legislative elections. Using data for 92 advanced and developing countries during 1975-2015, we find a positive association between political fragmentation and public debt changes. Corruption magnifies the effects; with higher perceived corruption, political fragmentation has a bigger sway on debt increases. The influence of political fragmentation on debt dynamics is somewhat asymmetric, with larger and more significant effects during periods of debt reduction. Establishment of fiscal councils helps attenuate the negative impact of political fragmentation on public debt dynamics.

Keywords: Public debt, Developing countries, Developed countries, Cross country analysis, Econometric models, Time series, Public debt; political fragmentation; common pool; veto players

JEL Classification: H11, H62, H63

Suggested Citation

Crivelli, Ernesto and Gupta, Sanjeev and Mulas-Granados, Carlos and Correa-Caro, Carolina, Fragmented Politics and Public Debt (September 2016). IMF Working Paper No. 16/190, Available at SSRN: https://ssrn.com/abstract=2882628

Ernesto Crivelli (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Sanjeev Gupta

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Carlos Mulas-Granados

Government of the Kingdom of Spain - Economic Bureau of the President ( email )

28071 Madrid
Spain

Carolina Correa-Caro

Universidad Central - Economics Department ( email )

Bogotá
Colombia

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