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

Abstract

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 interand intragenerational redistribution. Hence, coordination plays an important role in the strategic creation and exploitation of minorities, and thus in the accumulation of public debt.

The Effect of Public Debt on Income Inequality in Advanced Economies: Does Institutional Quality Matter?

“…Regarding the effect of income inequality on public debt, some studies (Arawatari and Ono, 2017; Röhrs and Winter, 2017;March and von Weizsäcker, 2020;Maebayashi and Konishi, 2021) develop theoretical models while others (Lee, 2005;Aksman, 2017;Luo, 2020;Carrera and de la Vega, 2021;Obiero and Topuz, 2021) carry out the empirical investigation. Arawatari and Ono (2017) develop a theoretical model to show the conflicts over fiscal policy across and within generations in which public debt and income inequality vary.…”