Periodic Reporting for period 2 - MIDEBT (The Micro-foundations of Debt Crises)
Okres sprawozdawczy: 2021-12-01 do 2023-05-31
This project attempts to understand the micro-foundations of debt crises by exploring why citizens support or do not support public debt reduction. All political economy theories on the accumulation of sovereign debt and the onset of debt crises make implicit or explicit assumptions about citizens' preferences, yet these assumptions are often untested. Avoiding national debt crises requires governments to make sacrifices today and governments need popular support to enact policies. Yet, we don’t know if citizens are motivated by myopia, distributive struggle, apathy, inattentiveness or
Thus, we have many competing theories, many of which of impossible to test with observational data, that are built on an untested assumption about citizen preferences. This project aims to test these assumptions and create new insights into what drives citizens' preferences toward sovereign debt consolidation. Only after understanding what drives citizens’ behavior towards debt consolidation can we then assess existing theories or build new theories to understand why some countries experience sovereign debt distress and debt crises while others are able to manage their finances.
Answering this question is important for several reasons. Sovereign debt crises are responsible for large amounts of human suffering and pain. Like war, debt crises are often not unexpected but still seem unavoidable. By understanding what forces shape these slow-moving crises we can hopefully design interventions to prevent them or minimize their social externalities.
The project has four related objectives:
1) To test and develop new theories about why some individuals are reluctant to accept consolidation today to avoid future debt crises.
2) Examine how individual preferences influence national-level debt policy
3) Examine how bond traders assess public opinion in their decisions to hold or sell sovereign bonds.
Thus, we have many competing theories, many of which of impossible to test with observational data, that are built on an untested assumption about citizen preferences. This project aims to test these assumptions and create new insights into what drives citizens' preferences toward sovereign debt consolidation. Only after understanding what drives citizens’ behavior towards debt consolidation can we then assess existing theories or build new theories to understand why some countries experience sovereign debt distress and debt crises while others are able to manage their finances.
Answering this question is important for several reasons. Sovereign debt crises are responsible for large amounts of human suffering and pain. Like war, debt crises are often not unexpected but still seem unavoidable. By understanding what forces shape these slow-moving crises we can hopefully design interventions to prevent them or minimize their social externalities.
The project has four related objectives:
1) To test and develop new theories about why some individuals are reluctant to accept consolidation today to avoid future debt crises.
2) Examine how individual preferences influence national-level debt policy
3) Examine how bond traders assess public opinion in their decisions to hold or sell sovereign bonds.
Thus far, we’ve used survey data to examine attitudes toward public debt reduction. In our first published study, we examine how age influences attitudes toward public debt. Since public debt is a problem for the future, many scholars have assumed that the elderly will place debt reduction as a low priority compared to younger citizens. This serves as a basis for many theories but has never been tested empirically. We test this assumption and find no evidence. However, we theorize that both the very young and very old should rank public debt as a low priority and that the middle-aged should be most concerned about debt. Our study suggests that politicians will find it difficult to build support for debt reduction as societies age.
We have also tested the common narrative that cultural differences explain the different fiscal politics of northern “saints” and southern “sinners within the European Union. This popular narrative is common in both academic circles and the press. Like many cultural narratives, it has never been tested. In our test, using over 200,000 survey responses, we find no evidence that northern and southern Europeans have different attitudes toward public debt. This suggests that the divergent outcomes are driven more by structural macroeconomic factors and institutions than cultural differences.
Aspide, Alessia, Kathleen J. Brown, Matthew DiGiuseppe, and Alexander Slaski. "Culture & European attitudes on public debt." New Political Economy (2022): 1-17.
Aspide, Alessia, Kathleen J. Brown, Matthew DiGiuseppe, and Alexander Slaski. "Age and support for public debt reduction." European Journal of Political Research (2021).
We have also tested the common narrative that cultural differences explain the different fiscal politics of northern “saints” and southern “sinners within the European Union. This popular narrative is common in both academic circles and the press. Like many cultural narratives, it has never been tested. In our test, using over 200,000 survey responses, we find no evidence that northern and southern Europeans have different attitudes toward public debt. This suggests that the divergent outcomes are driven more by structural macroeconomic factors and institutions than cultural differences.
Aspide, Alessia, Kathleen J. Brown, Matthew DiGiuseppe, and Alexander Slaski. "Culture & European attitudes on public debt." New Political Economy (2022): 1-17.
Aspide, Alessia, Kathleen J. Brown, Matthew DiGiuseppe, and Alexander Slaski. "Age and support for public debt reduction." European Journal of Political Research (2021).
The pandemic prevented us from collecting data on the main elements of the project in the first two years. As such, we don’t have much-published progress beyond the state of the art at this point. By the end of the project, we expect to provide a well-evidence and comprehensive account of the composition of individuals’ preferences toward pre-crisis debt policy and how those preferences might change. Further, we will provide evidence of how these features impact the decision of bond market investors that ultimately determine who will and will not suffer a debt crisis.