2019

Regulation and Government Debt

Reprint No. 2019:4

Author(s): Niclas Berggren and Christian BjørnskovYear: 2019 Title: Public Choice Volume (No.): 178 (1-2) Pages: 153–178
Online article (restrictions may apply)
Preliminary version


Government debt is large in most developed countries, and while budget deficits may reflect short-term attempts to kick-start the economy in times of crisis by means of fiscal stimulus, the longer-term consequences may be detrimental to investment and growth. Those negative consequences make it important to identify factors that are associated with public debt. While previous studies have related government debt to economic and political variables, they have not incorporated the degree to which the economy is regulated. Using a measure of regulatory freedom (absence of detailed regulation of labor, business and credit) from the Economic Freedom of the World index, we conduct an empirical analysis covering up to 67 countries during the period 1975–2010. The main finding is that regulatory freedom, especially with respect to credit availability, reduces debt accumulation. The effect is more pronounced when the political system is fractionalized and characterized by strong veto players, indicating policy stability and credibility, and when governments have right-wing ideologies.


Reference:
Berggren, Niclas and Christian Bjørnskov (2019), "Regulation and Government Debt". Public Choice 178(1-2), 153–178.

Niclas Berggren

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niclas.berggren@ifn.se

Christian Bjørnskov

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Mob: +45 20 12 03 84
chbj@econ.au.dk

Interdisciplinary European Studies

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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