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Is there a link between public debt and wealth inequality? Could government bondholders use intra-generational redistribution strategically to make the repayment of debt politically viable? We reconsider the model of Tabellini (J Polit Econ 99:335–357, 1991) and expose the role of coordination and divide-and-conquer. By coordinating their bond investments, the old generation splits up the young generation and secures a majority favoring debt repayment. Coordination therefore mediates the impact of wealth inequality on public debt. We test the model in a laboratory experiment and find that subjects often coordinate to exploit the link between inter- and intragenerational redistribution. Hence, coordination plays an important role in the strategic creation and exploitation of minorities, and thus in the accumulation of public debt.

Coordinating intergenerational redistribution and the repayment of public debt: an experimental test of Tabellini (1991)