Bottom-Up Sovereign Debt Preferences

Abstract

The public places an important constraint on a government’s ability to maintain sta- ble debt burdens and repay sovereign debt in times of crisis. Yet, scholars have only begun to examine how the public reasons about government debt. The nascent liter- ature finds that a mix of ego-tropic reasoning and top-down elite cues inform public attitudes on sovereign debt policy. In this paper, we propose a bottom-up explanation to complement existing theories. We argue that citizens’ preferences over sovereign debt are also driven by their attitudes toward private debt. Drawing from theories and methods from moral psychology, we propose that the link between private and public debt is similar to other folk economic beliefs that conflate how household and government budgets work. To test our argument, we conducted several preregistered studies. In Brazil and Italy, we find observational evidence that private debt attitudes are significantly correlated with citizens’ positions on public debt, and this is in part driven by their self-reported moral convictions. A survey experiment fielded in Italy finds that manipulating attitudes toward private debt changes support for public debt repayment.