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Debt-sensitive Majority Rules

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  • Gersbach, Hans
  • Grimm, Oliver
  • Becker, Johannes Gerd

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.

Suggested Citation

  • Gersbach, Hans & Grimm, Oliver & Becker, Johannes Gerd, 2010. "Debt-sensitive Majority Rules," CEPR Discussion Papers 7860, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7860
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    References listed on IDEAS

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    1. Ulrich Erlenmaier & Hans Gersbach, 2001. "Flexible Majority Rules," CESifo Working Paper Series 464, CESifo.
    2. Beetsma, Roel M. W. J. & Bovenberg, A. Lans, 1999. "Does monetary unification lead to excessive debt accumulation?," Journal of Public Economics, Elsevier, vol. 74(3), pages 299-325, December.
    3. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-236, March.
    4. Baron, David P. & Ferejohn, John A., 1989. "Bargaining in Legislatures," American Political Science Review, Cambridge University Press, vol. 83(4), pages 1181-1206, December.
    5. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2012. "Rotten Parents and Disciplined Children: A Politico‐Economic Theory of Public Expenditure and Debt," Econometrica, Econometric Society, vol. 80(6), pages 2785-2803, November.
    6. Alan J. Auerbach, 2008. "Federal Budget Rules: The US Experience," NBER Working Papers 14288, National Bureau of Economic Research, Inc.
    7. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    8. Hans Gersbach, 2009. "Democratic Mechanisms," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1436-1469, December.
    9. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
    10. Reinhard Neck & Jan-Egbert Sturm (ed.), 2008. "Sustainability of Public Debt," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262140985, April.
    11. Gersbach, Hans & Kleinschmidt, Tobias, 2009. "Power to youth: Designing democracy for long-term well-being," Mathematical Social Sciences, Elsevier, vol. 58(2), pages 158-172, September.
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    Citations

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    Cited by:

    1. Gersbach, Hans, 2017. "Flexible Majority Rules in democracyville: A guided tour," Mathematical Social Sciences, Elsevier, vol. 85(C), pages 37-43.
    2. repec:ers:journl:v:vi:y:2018:i:3:p:98-114 is not listed on IDEAS
    3. Asma Arif & Mujahid Hussain, 2018. "Economic, Political and Institutional Determinants of Budget Deficits Volatility: A Panel Data Analysis," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 98-114.
    4. Asma Arif & Mujahid Hussain, 2018. "The Role of Governance and Political institutions for Budget Deficit for Low and High Income Countries: A Panel Data Analysis," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 3), pages 357-366.
    5. Grüner, Hans Peter, 2017. "Mechanisms for the control of fiscal deficits," Journal of Economic Behavior & Organization, Elsevier, vol. 144(C), pages 133-152.
    6. Grüner, Hans Peter, 2015. "Optimal Mechanisms for the Control of Fiscal Deficits," CEPR Discussion Papers 10440, C.E.P.R. Discussion Papers.
    7. Garnov & A. & Zvyagin & L. & Sviridova & O., 2019. "System Data Analysis: Innovative Technologies, Methods and Techniques," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(Special 1), pages 26-39.
    8. Grüner, Hans Peter, 2014. "Optimal mechanisms for the control of fiscal deficits," Working Paper Series 1708, European Central Bank.

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    More about this item

    Keywords

    Debt restriction; Debt-sensitive majority rule; Fiscal policy; Public debt; Public goods; Simple majority rule; Voting;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • 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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