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Sticky Spending, Sequestration, and Government Debt

Author

Listed:
  • Facundo Piguillem
  • Alessandro Riboni

Abstract

Once established, government spending programs tend to continue. A commonly held view is that spending inertia leads to unsustainable debt, ultimately requiring fiscal adjustments such as "sequestration." We show that by insuring against political turnover, inertia may reduce politicians' incentives to accumulate debt. However, large preexisting commitments and the prospect of future stabilization can lead to overspending to dilute past administrations' commitments. Finally, we show that political polarization amplifies incentives to prioritize inertial programs, potentially explaining the increased share of mandatory spending in the US budget.

Suggested Citation

  • Facundo Piguillem & Alessandro Riboni, 2024. "Sticky Spending, Sequestration, and Government Debt," American Economic Review, American Economic Association, vol. 114(11), pages 3513-3550, November.
    • Handle: RePEc:aea:aecrev:v:114:y:2024:i:11:p:3513-50
    DOI: 10.1257/aer.20210935
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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