The political economy of public debt, reforms, and public investments

It is generally acknowledged that one important driving force behind an economy’s performance are decisions taken by governments today that have costs in the short run but carry positive implications in the future. One example could be a reform improving the efficiency of a country’s legal system. Often the positive long-run effects outweigh the short-run costs, making the implementation of such reforms the optimal decision from an efficiency viewpoint. Besides reforms and public investments, another important dynamic decision of governments is the decision to raise public debt. With the European debt crisis, the public debt decision has regained the interest of the academic debate. However, what has been neglected in the political economy literature is the interaction between the reform/investment decision and the decision to raise public debt. To investigate the interactions between reforms/public investments and public debt in a political economic setup is the purpose of the present dissertation