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Partisan politics and public debt: The importance of the ‘Whig Supremacy’ for Britain's financial revolution

Published online by Cambridge University Press:  26 March 2007

DAVID STASAVAGE
Affiliation:
Department of Politics, New York University, USA
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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.

Type
Research Article
Copyright
Cambridge University Press 2007

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