To limit the incumbents' tendency to push public debt beyond socially desirable levels, we allow candidates for public office to voluntarily offer GDTCs.
The particular feature of GDTCs is that they may be violated by office holders in special circumstances, and that, in such cases, a violation is desirable from the electorate's perspective.
In Section IV we introduce GDTCs and derive the resulting equilibrium.
i) There exists a unique equilibrium in which both candidates for office offer GDTCs with [[?
1] in their GDTCs and will choose it if they are elected.
GDTCs correct the three inefficiencies of standard elections as follows.
tau]]y) are the same in the first-best solution, and in elections with and without GDTCs.
We assume that GDTCs cannot be conditioned on macroeconomic shocks.
Proposition 5 indicates that candidates for office still offer GDTCs with balanced budgets.
We have assumed that GDTCs cannot be conditioned on macroeconomic events.
We have illustrated the working of GDTCs in a simple model.
As a consequence, in such situations GDTCs may contain positive public debt levels.