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

• Published in: Social choice and welfare Vol. 55; no. 2; pp. 301 - 323
• Main Authors: March, Christoph, von Weizsäcker, Robert K
• Format: Journal Article
• Language: English
• Published: Berlin, Heidelberg Springer 01.08.2020; Springer Berlin Heidelberg; Springer Nature B.V
• Subjects: Accumulation; Coordination; Economic inequality; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Exploitation; Game Theory; Game Theory, Economics, Social and Behav. Sciences; International Political Economy; Minority groups; Original Paper; Public debt; Public Finance; Redistribution; Social and Behav. Sciences; Social Policy; Wealth; Wealth distribution
• ISSN: 1432-217X; 0176-1714; 1432-217X
• DOI: 10.1007/s00355-020-01242-6

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