DEMOCRACY, POLITICAL COMPETITION AND PUBLIC DEBT
Keywords:
reputation, political competition, time preference, markets, social spending, public debtAbstract
There are two major preferences shaping political choices: one, regarding who should play the leading role in running the economy (markets or politicians) and the other, concerning social spending. According to reputation, leftist parties assign the leading role to politicians (i.e. the state), whereas rightist parties entrust markets with the central role in running the economy. Right-wing parties’ reputation of not favoring social spending is not backed by facts. Since both the left and the right display similar behaviors vis-à-vis social spending, it is preferable that markets play the central role in running the economy. Flexible markets help economic growth and employment, reducing the need for high social spending. The freedom of property and freedom from corruption indexes show that, in Romania, the market has never played the central role in running the economy. People’s prevailing concern over their wellbeing “now” rather than “tomorrow” generates competition among political right and left for higher social spending, leading to high public debt. Neither left, nor right can guarantee sustainable limits for social benefits and public debt. Capping the share of public debt in GDP by means of the Constitution provides no guarantee for public debt sustainability, but is worth a try.References
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