Channels, Spring 2018

Channels • 2018 • Volume 2 • Number 2 Page 35 Another article that touches on the public debt is “That Squeezing Feeling: The Interest Burden and Public Debt Stabilization” by Xavier Debrun and Tidiane Kinda. Unlike the two previous articles, which were more concerned with economic growth, this one focuses on questions of governance and institutional responses regarding public finance. Indeed, the authors’ willingness to consider the business of government in light of particular actors making economic choices is clear from the introduction. 118 This suggests a resemblance to Buchanan’s public choice integration in the field, even if only in the broadest terms. The article concludes that “a 100 basis-point increase in the effective interest rate leads to an average improvement in the primary balance of about 0.1% of GDP” for advanced economies. 119 Further, governments with advanced and emerging economies respond differently to high interest payments, as the former have a threshold of 12% of government revenue which prompts debt stabilization, while in the latter, 26% is the threshold. 120 However, the applications of the data lead to political conclusions reminiscent of Buchanan: [B]ecause rising interest payments appear to encourage fiscal prudence only when the crowding-out of socially useful public outlays is large enough, protracted periods of low interest rates could feed complacency in the face of already high debt levels. Specifically, economies whose central bank is stuck at the zero-lower bound – or actively engaged in quantitative easing – are more likely than not to continue navigating into high public debt territory for the foreseeable future. Reduced incentives to bring down public debt also cast doubts on the credibility of any political commitment to do so. This puts a premium on backing such commitments with formal fiscal frameworks aimed at enhancing discipline through fiscal policy rules or greater transparency. 121 The authors’ focus on mathematics does not isolate them from the very real behavioral and institutional implications of their research. This paper therefore demonstrates that the field of public finance is not entirely lacking attempts to understand the political process, constitutional structures, and individual incentives that shape public debt policy. However, it does not necessarily provide evidence that Buchanan’s contributions are still recognized and integrated. It is perhaps more worrisome that this paper did not include any citations of Buchanan than that the other articles lacked such a mention. The latter were not necessarily focused in applications of public debt where Buchanan was primarily concerned, while here the main considerations are the future, public actors, and the debt as 118 Xavier Debrun and Tidiane Kinda , “That Squeezing Feeling: The Interest Burden and Public Debt Stabilization,” International Finance 19:2, (2016) 148. “Like all aspects of fiscal policy, however, governments view that trade-off in light of objectives other than just stabilizing short term growth, including the provision of a stable stream of public goods and services over time. These objectives motivate the quote reported above: debt service diverts taxpayers’ money from items governments consider useful, and because any new debt issued to fund present primary spending ultimately curtails future fiscal space, there is a limit to the annual debt burden a politician is willing to tolerate.” 119 Ibid, 162. 120 Ibid, 171-172. 121 Ibid, 172.