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  3. American Economic Review
  4. November 2024
  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
vol. 114, no. 11, November 2024
(pp. 3513–50)
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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.

Citation

Piguillem, Facundo, and Alessandro Riboni. 2024. "Sticky Spending, Sequestration, and Government Debt." American Economic Review, 114 (11): 3513–50. DOI: 10.1257/aer.20210935

Additional Materials

JEL Classification

  • D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
  • E62 Fiscal Policy
  • H61 National Budget; Budget Systems
  • H63 National Debt; Debt Management; Sovereign Debt