Public spending programmes, once established, become entrenched, making it hard for the next administration to cut them. For many, this inertia leads to bloated spending and makes debt unsustainable. This column argues that the link between budget inertia and fiscal sustainability is surprisingly not straightforward. It examines when fiscal reforms might be ineffective, showing that inertia may improve fiscal sustainability – especially when coupled with more consensual legislative decision-making. In the case of the US, it argues that enforcing the Senate’s 60% supermajority rule would lower US debt.
According to many, budgetary inertia makes spending uncontrollable and debt unsustainable. So far, politicians are not only postponing the necessary adjustment; they also seem to be aggravating the problem. For example, Trump’s ‘One Big Beautiful Bill’, now under review by the US Senate, is estimated to add roughly $3 trillion to the debt over the next decade (Congressional Budget Office 2025).
While it is possible that politicians are simply behaving irresponsibly, the political economy literature offers a strategic rationale for high public debt. In politically polarised environments, Persson and Svensson (1989) and Alesina and Tabellini (1990) show that incumbent governments may deliberately increase debt to constrain future administrations — especially if those future governments are expected to spend on priorities the current administration does not value (see also Storesletten et al. 2019).
While the standard assumption in the literature is that the winning government is free to choose its preferred spending mix, in a recent paper (Piguillem and Riboni 2024), we consider governments that are partially constrained by past commitments and examine how budgetary inertia affects spending.
This question is relevant today, as many advocate reforms to reduce budgetary inertia as a simple fix to lower spending. For example, the OECD (2012) has suggested ‘sunset clauses’ to ensure the regular review of government programmes. Another idea recently gaining traction is zero-based budgeting — starting each year’s budget from a clean slate rather than using the previous year’s allocations as a baseline. Elon Musk has applied a similar approach in his companies and even with the Department of Government Efficiency (DOGE), and President Trump has also expressed interest in adopting it for the federal budget. 1 But what would be the implications of these reforms? We show that the answer is surprisingly complex: budgetary inertia not only prolongs past spending but also affects spending incentives.
Budgetary inertia: Upsides and downsides
We consider two parties that alternate in power and differ in their spending priorities. For example, one favours defence, while the other prefers social security and health programmes – a good description of US politics. To model budgetary inertia, we require the incumbent government to maintain an exogenous proportion of the inherited spending programmes. We show that inertia sometimes attenuates, but other times amplifies, politicians’ incentives to over-accumulate debt.
Let us begin with the positive aspect of inertia. By allocating resources to its preferred programmes, a government ensures that future administrations – willing or not – continue funding those priorities, thus providing insurance against political turnover. When future governments are required to maintain inherited expenditures, it may be in the current government’s interest not to increase debt excessively. Contrary to common belief, we show that greater inertia can reduce debt through this insurance effect.
But inertia also has two downsides. First, beyond influencing how much governments spend, it can distort what they spend on. When politicians must choose between two equally valued programmes — one more inertial (e.g. mandatory spending) and one less so — they’ll prefer the more inertial. This is because inertial programmes offer the added benefit of constraining future governments. As political polarisation between parties intensifies, we show that the incentive to over-provide inertial programmes strengthens. Consistent with this result, Figure 1 below illustrates that rising US congressional polarisation, measured by the DW-NOMINATE scores (Lewis et al. 2023, see also Boxell 2021), correlates with higher debt and a larger share of inertial spending — measured as the ratio of mandatory to discretionary spending, and also as the ratio of defence spending (a highly inertial category) and mandatory spending to the rest of the budget. While the conventional view attributes the rise in mandatory spending to voters’ demands (due, for instance, to an ageing population), our analysis suggests it may also reflect strategic efforts to constrain future administrations.
Figure 1 US congressional polarisation, debt, and mandatory spending
The second drawback of inertia is that in anticipation of the inevitable consolidation, parties accelerate spending. This is because they recognise that, due to spending inertia, whenever consolidation finally occurs, it is advantageous to enter it with favoured spending commitments commanding a larger share of the budget. Politicians overspend on their preferred programmes to ensure that, when across-the-board cuts occur, the opposition’s priorities bear the greater burden. If the opposition’s entitlements cannot be cut directly, the incumbent dilutes them through consolidation. This ‘dilution’ effect intensifies when incumbents inherit large, unfavoured commitments, resulting in further overspending to reduce the opposition’s share of the budget. This may be a good description of past US fiscal dynamics where one administration’s loose fiscal policies triggered even looser policies by its successors. After the Obama administration, and in response to rising entitlements and the failure to repeal Obamacare, President Trump increased the share of ‘Republican’ commitments — funding the border wall, boosting defence, and cutting taxes. The same pattern is playing out in Trump’s second term following Biden’s spending increases.
How checks and balances improve fiscal sustainability
The common view is that reforms that reduce budgetary inertia would improve fiscal outcomes. Our results provide a more nuanced perspective. While in some instances budgetary inertia may accelerate spending and distort spending choices, we also show that it provides insurance: it mitigates fluctuations in partisan spending caused by political turnover and reduces the incentive to accumulate debt. Thus, reducing spending inertia may backfire in certain cases.
We suggest a better approach than focusing on reforms to reduce budgetary inertia: reforms should aim to improve compromise between political parties. Maintaining budgetary stickiness but coupling it with a supermajority requirement for enacting policy changes could be beneficial: it preserves the insurance motive while preventing the current government from unilaterally increasing spending to dilute the opposition’s commitments. We show that this combination can lead to reduced debt and, in some cases, its elimination. For example, in the US, both Republicans and Democrats have historically bypassed the Senate’s supermajority requirement by using the budget reconciliation process. A key conclusion of our analysis is that enforcing the Senate’s 60% rule would lower US debt.
Source: cepr.org
