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(2009)Symposium on Public Economics, 16th, Proceedings. Mark abstract This paper discusses the literature on strategic use of debt models and empirically tests the seminal models of Persson & Svensson (1989) and Alesina & Tabellini (1990) on a dataset of Flemish municipalities. The literature on strategic use of debt originates from the question whether incumbent policy makers run higher budget deficits if they expect an electoral defeat. We introduce a vote function to estimate the probability of electoral defeat and present evidence of strategic debt in line with Persson & Svensson (1989). Moreover, we show that coalition governments in particular are more likely to increase debt strategically.

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Author: Stijn Goeminne and Carine Smolders



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