Public debt rule breaking by time-inconsistent voters

This study considers how present-biased preferences influence public debt policy when a violation of debt rules is possible. To address this issue, the study extends the framework of Bisin, Lizzeri, and Yariv (American Economic Review 105, (2015), 1711--1737) by allowing for rule breaking with extra costs, and we show that rule breaking occurs when a country exhibits a strong present bias. We further extend the model by introducing a political process for determining the debt rule, and we show that a polarization of debt rules emerges between countries with high and low degrees of present bias.