Government Policy with Time Inconsistent Voters
نویسندگان
چکیده
Behavioral economics presents a “paternalistic”rationale for benevolent government intervention. This paper presents a model of public debt where voters have self-control problems and attempt to commit by accumulating illiquid assets. We introduce politicians who may indulge/exploit voters’behavioral biases. Three main insights emerge: (i) Individuals’attempts to privately undo the consequences of debt accumulation feed the subsequent demand for government debt; (ii) There is large debt accumulation leading to wasted resources; (iii) Banning illiquid assets would improve first-period welfare. These results offer a new rationale for balanced budget rules in constitutions to restrain governments’responses to voters’self-control problems.
منابع مشابه
For Online Publication: Appendix for Government Policy with Time Inconsistent Voters
In this supplementary appendix, we study various extensions of the model in the paper. More specifically, in Section A we allow for election in the first period; in Section B we study the setting with arbitrary number of periods and convex distortions discussed in the body of the paper; in Section C we analyze a model analogous to the one presented in the paper in which agents are characterized...
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