DP7860 Debt-sensitive Majority Rules
|Author(s):||Johannes Gerd Becker, Hans Gersbach, Oliver Grimm|
|Publication Date:||June 2010|
|Keyword(s):||debt restriction, debt-sensitive majority rule, fiscal policy, public debt, public goods, simple majority rule, voting|
|JEL(s):||D72, E61, H41, H63|
|Programme Areas:||Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=7860|
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.