Public debt, fiscal decisions and political power

The present paper treats the issue of economic foundations, on which political power rests, and the specific problem of public debt in the developed countries. Starting from the general question: “Why do rich governments borrow so much?” the paper develops a model of political power based on the possession of capital, and on the transformation of public possession into private property rights. Empirical investigation follows, in a sample of 21 countries, demonstrating that there is an objectively existing transfer of capital from public borrowing to private property rights; that transfer is connected mostly to the property of non-productive assets, and goes beyond the easily inferable relation to net exports. That the transfer from public borrowing to private property rights is strongly correlated with the relative dispersion or concentration of power in the political system. We are witnessing a progressive withdrawal of public finance and public borrowing as a means of transferring capital, with a simultaneously growing idiosyncrasy (cross-sectinal variance) of fiscality.