Political power and the credibility of government debt

If political power and motives to invest in government bonds are positively correlated across voting groups, then a self-selection equilibrium can ari se where the government's promise to repay its debt is credible. We illustr ate this using a formal model where the alternative use of wealth is to acq uire human capital. Classification Numbers: D72, E60, H63. (C) 2000 Academi c Press.