REDISTRIBUTIVE POLITICS AND GOVERNMENT DEBT IN A BORROWING‐CONSTRAINED ECONOMY |
| |
| Authors: | Ryo Arawatari Tetsuo Ono |
| |
| Affiliation: | 1. Nagoya University, Japan;2. Osaka University, Japan |
| |
| Abstract: | We develop a two‐period, three‐class of income model where low‐income agents are borrowing constrained because of capital market imperfections, and where redistributive expenditure is financed by tax and government debt. When the degree of capital market imperfection is high, there is an ends‐against‐the‐middle equilibrium where the constrained low‐income and the unconstrained high‐income agents favour low levels of government debt and redistributive expenditure; these agents form a coalition against the middle. In this equilibrium, the levels of government debt and expenditure might be below the efficient levels, and the spread of income distribution results in a lower debt‐to‐GDP ratio. |
| |
| Keywords: | borrowing constraints government debt income inequality structure‐induced equilibrium voting D72 H52 H60 |
|
|
