Seminarios académicos y conferencias
Coautores: Alessandro Lizzeri y Nicola Persico
3 Mayo 2016 - 17 hrs.
Sala 209, Facultad de Ciencias Económicas y Administrativas UC
“Abstract: This paper presents a dynamic political-economic model of government obligations. The focus is on the interplay between debt and entitlements. In our model both are tools for temporarily powerful groups to extract resources from groups that will be powerful in the future. Debt transfers resources across periods; entitlements directly target the future allocation of resources. We prove four main results. First, debt and entitlement are (imperfect) substitutes in the sense that constraining debt increases entitlements (and vice versa). Second, if debt is unconstrained, it is beneficial to limit entitlements but not to eliminate them. Third, debt and entitlements respond in opposite ways to political instability, and, in contrast with prior literature, political instability may even reduce debt when entitlements are endogenous. Finally, we identify two possible explanations for the joint growth of debt and entitlements.