Public Debt and the Demand for Government Spending and Taxation

Category: Money and Macro Brown Bag Seminar
When: 18 May 2017
, 12:00
 - 13:00
Where: Boston (HoF 2.45)
Speaker: Johannes Wohlfart (Goethe University Frankfurt)

We examine whether people’s beliefs about government debt affect their attitudes towards government spending and taxation. We conduct two online experiments in the United States in which we inform half of the participants about the current debt-to-GDP ratio. Thereafter, all of our respondents complete a series of questions measuring their attitudes towards government spending and taxation using self-reports and behavioral measures. We find that most people underestimate the actual debt-to-GDP ratio and favor a cut in government spending once they learn about the actual amount of indebtedness, but do not on average alter their attitudes towards taxation. We show that our effects operate through changes in beliefs about fiscal sustainability.