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Understanding the Emergence of Public Debt

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  • Martin Fochmann
  • Abdolkarim Sadrieh
  • Joachim Weimann

Abstract

We use a controlled laboratory experiment with and without overlapping generations to study the emergence of public debt. Public debt is chosen by popular vote, pays for public goods, and is repaid with general taxes. With a single generation, public debt is accumulated prudently, never leading to over-indebtedness. With multiple generations, public debt is accumulated rapidly as soon as the burden of debt and the risk of over-indebtedness can be shifted to future generations. Debt ceiling mechanisms do not mitigate the debt problem. With overlapping generations, political debt cycles emerge, oscillating with the age of the majority of voters.

Suggested Citation

  • Martin Fochmann & Abdolkarim Sadrieh & Joachim Weimann, 2014. "Understanding the Emergence of Public Debt," CESifo Working Paper Series 4820, CESifo.
    • Handle: RePEc:ces:ceswps:_4820
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    References listed on IDEAS

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    Cited by:

    1. Müller, Julia & Schwieren, Christiane & Spitzer, Florian, 2016. "What Drives Destruction? On the Malleability of Anti-Social Behavior," Department of Economics Working Paper Series 238, WU Vienna University of Economics and Business.

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    More about this item

    Keywords

    public debt and taxation; government spending; budget deficit; balanced budget; common pool resources;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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