Public Choice

, Volume 148, Issue 1–2, pp 149–161 | Cite as

Elections and the strategic use of budget deficits

  • Roland Hodler


We present a model in which a conservative incumbent with preferences for low public spending can strategically run a budget deficit to prevent the left-wing opposition candidate from choosing high public spending if elected, and possibly also to ensure his own reelection. We find that the incumbent never manipulates the opposition candidate’s public spending if he can ensure his own reelection; and that a conservative incumbent who runs a budget deficit to ensure his reelection may somewhat paradoxically choose high public spending before the election.


Voting Budget deficits Public debt Distortionary policies 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Aghion, P., & Bolton, P. (1990). Government domestic debt and the risk of default: a political-economic model of a strategic role of debt. In R. Dornbusch, & M. Draghi (Eds.), Public debt management: theory and history (pp. 315–345). Cambridge: Cambridge University Press. Google Scholar
  2. Alesina, A., & Cukierman, A. (1990). The politics of ambiguity. Quarterly Journal of Economics, 105, 829–850. CrossRefGoogle Scholar
  3. Alesina, A., & Tabellini, G. (1990a). A positive theory of fiscal deficits and government debt. Review of Economic Studies, 57, 403–414. CrossRefGoogle Scholar
  4. Alesina, A., & Tabellini, G. (1990b). Voting on the budget deficit. American Economic Review, 80, 37–49. Google Scholar
  5. Battaglini, M., & Coate, S. (2008). A dynamic theory of public spending, taxation, and debt. American Economic Review, 98, 201–236. CrossRefGoogle Scholar
  6. Besley, T., & Coate, S. (1998). Sources of inefficiency in a representative democracy: a dynamic analysis. American Economic Review, 88, 139–156. Google Scholar
  7. Biais, B., & Perotti, E. (2002). Machiavellian privatization. American Economic Review, 92, 240–258. CrossRefGoogle Scholar
  8. Caballero, R. J., & Yared, P. (2008). Future rent-seeking and current public saving. NBER Working Paper 14417. Google Scholar
  9. CBO (2009). Historical budget data. Washington: Congressional Budget Office. Google Scholar
  10. Crain, W. M. (2001). Institutions, durability, and the value of political transactions. In W. F. II Shughart, & L. Razzolini (Eds.), The Elgar companion to public choice (pp. 183–196). Cheltenham: Edward Elgar. Google Scholar
  11. Dellis, A. (2009). The salient issue of issue salience. Journal of Public Economic Theory, 11, 203–231. CrossRefGoogle Scholar
  12. Hodler, R., Loertscher, S., & Rohner, D. (2007). Inefficient policies and incumbency advantage. Cambridge Working Paper in Economics 0738. Google Scholar
  13. Lizzeri, A. (1999). Budget deficits and redistributive politics. Review of Economic Studies, 66, 909–928. CrossRefGoogle Scholar
  14. Milesi-Ferretti, G. M., & Spolaore, E. (1994). How cynical can an incumbent be? Strategic policy in a model of government spending. Journal of Public Economics, 55, 121–140. CrossRefGoogle Scholar
  15. Persson, T., & Svensson, L. (1989). Why a stubborn conservative would run a deficit: policy with time-inconsistent preferences. Quarterly Journal of Economics, 104, 325–345. CrossRefGoogle Scholar
  16. Persson, T., & Tabellini, G. (2000). Political economics: explaining economic policies. Cambridge: MIT Press. Google Scholar
  17. Pettersson-Lidbom, P. (2001). An empirical investigation of the strategic use of debt. Journal of Political Economy, 109, 570–583. CrossRefGoogle Scholar
  18. Rogoff, K., & Sibert, A. (1988). Elections and macroeconomic policy cycles. Review of Economic Studies, 55, 1–16. CrossRefGoogle Scholar
  19. Yared, P. (2010). Politicans, taxes, and debt. Review of Economic Studies, 77, 806–840. CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Study Center GerzenseeGerzenseeSwitzerland
  2. 2.Department of EconomicsUniversity of MelbourneMelbourneAustralia

Personalised recommendations