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  5. Sticky Spending, Sequestration, and Government Debt

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Sticky Spending, Sequestration, and Government Debt

  • Facundo Piguillem
  • Alessandro Riboni
American Economic Review (Forthcoming)

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 U.S. budget.

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