Barta, Zsófia
(2011)
Flirting with disaster: explaining excessive public debt accumulation in Italy and Belgium.
PhD thesis, London School of Economics and Political Science.
Abstract
The
sovereign
debt-‐crises
that
recently
unfolded
in
Europe
highlight
how
incompletely
we
understand
why
prosperous
developed
countries
persistently
accumulate
debt
even
in
the
face
of
risk
of
fiscal
turmoil.
Scholarly
research
explored
why
countries
run
deficits,
but
it
remains
unexplained
why
countries
fail
to
put
their
fiscal
houses
in
order
once
public
debt
reaches
potentially
dangerous
proportions.
This
thesis
argues
that
the
key
to
the
problem
of
excessive
debt
accumulation
is
the
lack
of
compromise
among
powerful
socio-‐economic
groups
within
the
polity
about
the
distribution
of
the
necessary
fiscal
sacrifices.
As
long
as
each
group
finds
it
expedient
to
resist
spending
cuts
and
tax
increases
that
place
part
of
the
burden
of
consolidation
on
its
members,
stabilization
is
delayed
and
debt
is
allowed
to
grow.
The
readiness
of
groups
to
reach
a
compromise
and
accept
a
share
of
the
fiscal
pain
is
a
function
of
the
economic
harm
each
suffers
from
the
side-‐effects
of
fiscal
imbalances,
such
as
high
inflation
or
declining
international
competitiveness.
Therefore,
the
insulation
of
socio-‐
economic
actors
from
such
side-‐effects
delays
stabilization.
This
perspective
sheds
new
light
on
unintended
consequences
of
EMU-‐membership.
This
explanation
is
couched
in
a
society-‐centred
analysis
of
policy
making.
The
thesis
identifies
coalitions
of
societal
interest
to
explain
policy
choices,
along
the
lines
laid
down
in
Gourevitch’s
Politics
in
Hard
Times
(1986)
and
it
uses
Alesina
and
Drazen’s
(1991)
war
of
attrition
model
of
delayed
stabilization
to
analyse
the
costs
and
benefits
for
socio-‐economic
groups
of
resisting
fiscal
pain.
Using
this
approach,
it
provides
theoretically
guided
historical
analyses
of
Belgium’s
and
Italy’s
experiences
with
excessive
debt
accumulation
in
the
1980s,
consolidation
in
the
1990s
and
mixed
results
in
the
2000s,
demonstrating
how
the
interests
of
societal
groups
shaped
the
politics
of
fiscal
policy-‐making
and
investigating
the
effect
of
the
EMU
accession
on
fiscal
outcomes.
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