Bribery and Public Debt Repudiation

In cases where policy makers accept “bribes” offered by organised lobbies or interested parties, government decisions can be modelled as a first price menu auction. In this paper we adapt this structure to model debt repudiation. We consider a one-period model in which two generations, parents and children, are present, and debt titles are unevenly distributed among parents. The government can repay the debt by a combination of taxes on the children’s income and on the outstanding debt. We exclude intergenerational conflicts, assuming that the parents’ and children’s objective is to maximise the utility of the family. In this perspective, families make offers that relate monetary contributions to the tax structures chosen by the government. On the hypothesis that all interests are represented, we obtain the result that the government is indifferent to the tax structure.