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Lack Of Commitment And The Level Of Debt

Debortoli, D and Praca Cavaco Nunes, Ricardo (2013) Lack Of Commitment And The Level Of Debt Journal of the European Economic Association, 11 (5). pp. 1053-1078.

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Abstract

The tendency of countries to accumulate public debt has been rationalized in models of political disagreement and lack of commitment. We analyze in a benchmark model how the evolution of public debt is affected by lack of commitment per se. While commitment introduces indeterminacy in the level of debt, lack of commitment creates incentives for debt to converge to specific levels. One of the levels that debt often converges to implies no debt accumulation at all. In a simple example we prove analytically that debt converges to zero, and we analyze numerically more complex models. We also show in an imperfect credibility setting that a small deviation from full-commitment is enough to obtain these results.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
NameEmailORCID
Debortoli, DUNSPECIFIEDUNSPECIFIED
Praca Cavaco Nunes, Ricardoricardo.nunes@surrey.ac.ukUNSPECIFIED
Date : 2013
Identification Number : 10.1111/jeea.12030
Copyright Disclaimer : Copyright 2013 Oxford University Press
Uncontrolled Keywords : C61, E61, E62, P16
Depositing User : Melanie Hughes
Date Deposited : 10 Oct 2017 17:09
Last Modified : 10 Oct 2017 17:09
URI: http://epubs.surrey.ac.uk/id/eprint/842503

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