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We analyze a model where local public debt levels are set by politicians who are chosen in local elections. Migration causes an externality across districts, and leads to overaccumulation of local public debt. Since debt is a strategic substitute , the median voters in each district prefer shortsighted political leaders who “borrow and spend,” thereby exacerbating the problem of overaccumulation of local public debt.
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Schultz et al. (2004) studied this question.
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