Joint with Pablo Sánchez
Abstract: This paper develops a politico-economic theory linking public debt and political polarization. We argue that fiscal constraints are politically asymmetric: debt disproportionately undermines left-wing electoral prospects by crowding out spending-intensive progressive agendas, inducing the right to strategically accumulate debt. Yet, strategic behavior is bounded: there is a party-specific debt threshold beyond which further debt accumulation is electorally unprofitable, with the right’s threshold strictly lower than the left’s. In equilibrium, a stochastic debt-electoral cycle emerges between these thresholds: left-wing governments accumulate debt, right-wing governments consolidate, and right-wing radicalism rises with indebtedness. The model offers a unified explanation for the U-shaped co-movement between public debt and right-wing radicalism, a pattern we document by constructing a new dataset of legislative elections for 31 OECD countries over the past century.
