Coordinating intergenerational redistribution and the repayment of public debt: an experimental test of Tabellini (1991)

Faculty/Professorship: Economic Theory  
Author(s): March, Christoph  ; Weizsäcker, Robert K. von
Title of the Journal: Social Choice and Welfare
ISSN: 1432-217X, 0176-1714
Publisher Information: Berlin ; Heidelberg : Springer
Year of publication: 2020
Volume: 55
Issue: 2
Pages: 301-323
Language(s): English
DOI: 10.1007/s00355-020-01242-6
Is there a link between public debt and wealth inequality? Could government bondholders use intra-generational redistribution strategically to make the repayment of debt politically viable? We reconsider the model of Tabellini (J Polit Econ 99:335–357, 1991) and expose the role of coordination and divide-and-conquer. By coordinating their bond investments, the old generation splits up the young generation and secures a majority favoring debt repayment. Coordination therefore mediates the impact of wealth inequality on public debt. We test the model in a laboratory experiment and find that subjects often coordinate to exploit the link between inter- and intragenerational redistribution. Hence, coordination plays an important role in the strategic creation and exploitation of minorities, and thus in the accumulation of public debt.
GND Keywords: Öffentliche Schulden; Verteilungsgerechtigkeit; Generationengerechtigkeit; Wertpapieranlage; Vermögensumverteilung
Keywords: public debt, wealth inequality, generation split, bond investment, redistribution
DDC Classification: 330 Economics  
650 Management & public relations  
RVK Classification: QC 160     QL 700     QK 800   
Type: Article
Release Date: 3. March 2022