Does public debt secure social peace? A diversionary theory of public debt management Maxime Menuet 1 , Patrick Villieu Univ. Orl´ eans, CNRS, LEO, UMR 7322, FA45067, Orl´ eans, Franc e Abstract This paper develops a new analysis of the strategic use of public debt. Contrary to the usual view that politicians can use public debt to tie the hands of their successors, we show that an incumbent government can take advantage of having tied his own hands before the election by the means of public debt. By so doing, he reduces the base for future social conflicts, beneficiates from social peace during his term and possibly enhances his chances to be reelected. In addition, in the case with foreign or external public debt, the incumbent can strategically divert future social conflicts toward a common enemy (the foreign creditors). Thus, by increasing public debt before the election, the incumbent can strengthen social cohesion during the mandate, both by reducing the base of internal conflicts and by diverting citizens from internal toward external rent-seeking activities. Keywords: Public debt, Election, Conflict, Ren t-seeking. 1. Introduction The long-lasting tradition of Political Budget Cycle suggest that election cycles in public spending and taxes can result from the strategic behavior of incumbent politicians who seek reelection. Opportunistic governments will undertake pre-electoral expansionary fiscal policies because short-sighted electors appreciate low taxes and high expenditures (Nordhaus, 1975), or, in modern probabilistic voting models (see, e.g. Lindbeck and Weibull , 1987; Persson and Tabellini , 2000) because rational forward- looking electors face informational problems. In this literature, voters are imperfectly informed about candidates’ abilities or about the environment, and a fiscal expansion that boosts economic activity may signal the incumbent’s competencies. The latter is then tempted to stimulate activity to be viewed as more competent (see Rogoff and Sibert, 1988). 1 Corresponding author: maxime.menuet@univ-orleans.fr. 1