Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Political Economy: The Effect of Constitutional Rules No. C17-V1
We examine debt-sensitive majority rules. According to such a rule, the higher a planned public debt, the higher the necessary parliamentary majority 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 of negative macroeconomic shocks.
fiscal policy public debt public goods voting simple majority rule debt-sensitive majority rule debt restriction