An Empirical Investigation of the Strategic Use of Debt

The paper examines the accumulation of debt by Swedish local governments. I find that right‐wing governments accumulate more debt when facing a higher probability of defeat, whereas the opposite occurs for left‐wing governments. These effects are sizable: a right‐wing government increases its level...

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Bibliographic Details
Published in:The Journal of political economy 2001-06, Vol.109 (3), p.570-583
Main Author: Pettersson‐Lidbom, Per
Format: Article
Language:English
Subjects:
Debt
Debt service
Deficits
Economic models
Economic theory
Elections
Fiscal policy
Government
Government spending
Incumbency
Incumbents
Instrumental variables
Left
Local government
Modeling
Municipal governments
Political behavior
Political economy
Proxy reporting
Proxy statements
Public debt
Public expenditure
Right
Statistical analysis
Strategic planning
Studies
Taxes
Voting
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Summary:The paper examines the accumulation of debt by Swedish local governments. I find that right‐wing governments accumulate more debt when facing a higher probability of defeat, whereas the opposite occurs for left‐wing governments. These effects are sizable: a right‐wing government increases its level of debt by 15 percent, whereas a left‐wing government decreases its debt by 11 percent if they are both certain of being replaced as compared to when they are certain of remaining in office. The results are consistent with the predictions from a strategic debt model developed by Persson and Svensson.
ISSN:0022-3808
1537-534X
DOI:10.1086/321021