Partisan politics and public debt

The importance of the 'Whig Supremacy' for Britain's financial revolution

Research output: Contribution to journalArticle

Abstract

It has become common for authors to argue that government commitment to repay debt depends upon institutions. In this article I present new econometric evidence which shows that in one prominent case, Great Britain after 1688, credibility depended more immediately upon partisan preferences. The 'revolution' in British public finance may indeed have been spurred forward by the constitutional changes of the Glorious Revolution, but it was only consolidated in 1715, almost three decades later, during a 'Whig Supremacy' where a single party established unchecked control over British political institutions. It mattered a great deal for the final outcome that the Whig party was intimately associated with government creditors while their opponents, the Tories, were not. I provide evidence of a structural break in both government costs of borrowing and Bank of England share prices that is consistent with this argument. Using an ARCH-in-mean model, I then show that the evolution of the Whig majority in the House of Commons provides a better explanation for the evolution of government credibility than does either the assumption of a simple structural break in 1715, or an explanation focusing strictly on political stability, and ignoring partisan preferences. These findings have broad implications for our understanding of the determinants of credibility.

Original languageEnglish (US)
Pages (from-to)123-153
Number of pages31
JournalEuropean Review of Economic History
Volume11
Issue number1
DOIs
StatePublished - Apr 2007

Fingerprint

Supremacy
Revolution
Whig
Government
Partisan
Public Debt
Public debt
Partisan politics
Credibility
Structural Breaks
Structural breaks
Public Finance
Creditors
Debt
House of Commons
Opponents
Tory
Glorious Revolution
Costs
Borrowing

ASJC Scopus subject areas

  • History
  • Economics, Econometrics and Finance (miscellaneous)

Cite this

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abstract = "It has become common for authors to argue that government commitment to repay debt depends upon institutions. In this article I present new econometric evidence which shows that in one prominent case, Great Britain after 1688, credibility depended more immediately upon partisan preferences. The 'revolution' in British public finance may indeed have been spurred forward by the constitutional changes of the Glorious Revolution, but it was only consolidated in 1715, almost three decades later, during a 'Whig Supremacy' where a single party established unchecked control over British political institutions. It mattered a great deal for the final outcome that the Whig party was intimately associated with government creditors while their opponents, the Tories, were not. I provide evidence of a structural break in both government costs of borrowing and Bank of England share prices that is consistent with this argument. Using an ARCH-in-mean model, I then show that the evolution of the Whig majority in the House of Commons provides a better explanation for the evolution of government credibility than does either the assumption of a simple structural break in 1715, or an explanation focusing strictly on political stability, and ignoring partisan preferences. These findings have broad implications for our understanding of the determinants of credibility.",
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