Discussion paper

DP7860 Debt-sensitive Majority Rules

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.

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Citation

Gersbach, H, O Grimm and J Becker (2010), ‘DP7860 Debt-sensitive Majority Rules‘, CEPR Discussion Paper No. 7860. CEPR Press, Paris & London. https://cepr.org/publications/dp7860