Fragmented Politics and Public Debt

ByErnesto Crivelli, Sanjeev Gupta, Carlos Mulas-Granados, Carolina Correa-Caro

September 19, 2016

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In this paper, we study the impact of fragmented politics on public debt—in particular, between two consecutive legislative elections. Using data for 92 advanced and developing countries during 1975-2015, we find a positive association between political fragmentation and public debt changes. Corruption magnifies the effects; with higher perceived corruption, political fragmentation has a bigger sway on debt increases. The influence of political fragmentation on debt dynamics is somewhat asymmetric, with larger and more significant effects during periods of debt reduction. Establishment of fiscal councils helps attenuate the negative impact of political fragmentation on public debt dynamics.

Subject: Asset and liability management, Corruption, Crime, Debt reduction, Debt sustainability analysis, External debt, Fiscal councils, Fiscal policy, Public debt

Keywords: accumulation rate, center, common pool, Corruption, debt accumulation, debt creation, debt episode, debt increase, debt issuance, Debt reduction, Debt sustainability analysis, dummy variable, Fiscal councils, fiscal policy, government debt dynamics, government term, political fragmentation, Public debt, veto player, veto players, WP

Pages:
31
Volume:
2016
DOI:
https://doi.org/10.5089/9781475537024.001
Issue:
190
Series:
Working Paper No. 2016/190
Stock No:
WPIEA2016190
ISBN:
9781475537024
ISSN:
1018-5941

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