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Habit formation, strategic extremism, and debt policy

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  • Egil Matsen
  • Øystein Thøgersen

Abstract

We suggest a probabilistic voting model where voters� preferences for alternative public goods display habit formation. Current policies determine habit levels and in turn the future preferences of the voters. This allows the incumbent to act strategically in order to influence the probability of reelection. Comparing to a benchmark case of a certain reelection, we demonstrate that the incumbent�s optimal policy features both a more polarized allocation between the alternative public goods and a debt bias.
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  • Egil Matsen & Øystein Thøgersen, 2010. "Habit formation, strategic extremism, and debt policy," Public Choice, Springer, vol. 145(1), pages 165-180, October.
    • Handle: RePEc:kap:pubcho:v:145:y:2010:i:1:p:165-180
    DOI: 10.1007/s11127-009-9559-z
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    2. Patrick Mardini, 2015. "The Endangered Classical Liberal Tradition in Lebanon: A General Description and Survey Results," Econ Journal Watch, Econ Journal Watch, vol. 12(2), pages 242–259-2, May.

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    More about this item

    Keywords

    Budget deficits; Voting; Extremism; Habit formation; D72; D78; H62;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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