Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235332 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8962
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
We develop a two-period model of redistributive politics in which two politicians compete in an election in each period. In the first period, the politicians propose both whether to experiment with an efficient reform with uncertain benefits and choose the amount of public debt. Politicians also allocate pork-barrel spending to voters in each period. We show that allowing politicians to raise debt ensures that the reform is always implemented when the reform’s ratio of private good to public good gains exceeds a threshold, i.e. the reform generates enough private good benefits. This is not the case when the reform’s ratio of private good to public good gains is below this threshold. We also examine hard and a soft debt limits, and find that both limits reduce the political success of the reform. However, at moderate debt levels soft limits dominate hard limits with respect to equilibrium efficiency of reform provision.
Subjects: 
political competition
public debt
reforms
redistributive politics
debt and spending limits
JEL: 
C72
D72
D78
H60
Document Type: 
Working Paper
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