American Economic Review Vol. 114 No. 11 2024
Sticky Spending, Sequestration, and Government Debt
Abstract
Once established, government spending programs tend to continue. A commonly held view is that spending inertia leads to unsustainable debt, ultimately requiring fiscal adjustments such as “sequestration.” We show that by insuring against political turnover, inertia may reduce politicians’ incentives to accumulate debt. However, large preexisting commitments and the prospect of future stabilization can lead to overspending to dilute past administrations’ commitments. Finally, we show that political polarization amplifies incentives to prioritize inertial programs, potentially explaining the increased share of mandatory spending in the US budget.
- DOI
- 10.1257/aer.20210935
- Volume
- 114
- Issue
- 11
- Pages
- 3513-3550
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref