<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>Macroeconomic expectations influence long-term output, investment, and employment through households’ behavior. Policymakers and politicians attempt to predict the behavior of citizens and voters. How individuals form expectations and perceive sovereign indebtedness brings into question public finance sustainability and incumbents’ credibility. Based on a cross-country survey in Central and Eastern European countries, we estimate several probit regressions to uncover the effects of economic knowledge on sovereign debt expectations. Robustness tests and additional control confirm the initial results. We find that knowledge about public debt increases the chances of forming negative expectations, while higher financial literacy tends to have the opposite effect. More specifically, individuals with higher public debt knowledge are 5.4 percentage points less likely to show positive expectations, while individuals with higher levels of financial literacy (interest rate and inflation knowledge) are approximately 3.5 percentage points more likely to form positive expectations. The results indicate that public debt expectations are driven by negative biases resulting from the lack of economic knowledge together with insufficiency in understanding economic causal mechanisms. Financial literacy programs could benefit from including information about macroeconomics in curricula. Improving individual abilities to understand macroeconomic mechanisms, including public debt, has the potential to influence expectations and shift behaviors towards desired policy outcomes.</p>
</abstract>

Macroeconomic expectations influence long-term output, investment, and employment through households’ behavior. Policymakers and politicians attempt to predict the behavior of citizens and voters. How individuals form expectations and perceive sovereign indebtedness brings into question public finance sustainability and incumbents’ credibility. Based on a cross-country survey in Central and Eastern European countries, we estimate several probit regressions to uncover the effects of economic knowledge on sovereign debt expectations. Robustness tests and additional control confirm the initial results. We find that knowledge about public debt increases the chances of forming negative expectations, while higher financial literacy tends to have the opposite effect. More specifically, individuals with higher public debt knowledge are 5.4 percentage points less likely to show positive expectations, while individuals with higher levels of financial literacy (interest rate and inflation knowledge) are approximately 3.5 percentage points more likely to form positive expectations. The results indicate that public debt expectations are driven by negative biases resulting from the lack of economic knowledge together with insufficiency in understanding economic causal mechanisms. Financial literacy programs could benefit from including information about macroeconomics in curricula. Improving individual abilities to understand macroeconomic mechanisms, including public debt, has the potential to influence expectations and shift behaviors towards desired policy outcomes.

Public Debt Expectations: The More You Know about Public Debt, the Less Optimistic You Are

cecilia.ciocirlan@facultateademanagement.ro

valentin.stoica@facultateademanagement.ro

National University of Political Science and Public Administration

Management Dynamics in the Knowledge Economy

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Macroeconomic expectations influence long-term output, investment, and employment through households’ behavior. Policymakers and politicians attempt to predict...

Public Debt Expectations: The More You Know about Public Debt, the Less Optimistic You Are

Published Online: Jun 30, 2023

Page range: 190 - 207

Received: May 02, 2023

Accepted: May 28, 2023

DOI: https://doi.org/10.2478/mdke-2023-0013

Keywords
public debt expectations, economic knowledge, financial literacy, trust

© 2023 Cecilia Ciocîrlan et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Public Debt Expectations: The More You Know about Public Debt, the Less Optimistic You Are

Published Online: Jun 30, 2023

Page range: 190 - 207

Received: May 02, 2023

Accepted: May 28, 2023

DOI: https://doi.org/10.2478/mdke-2023-0013

Keywordspublic debt expectations, economic knowledge, financial literacy, trust

© 2023 Cecilia Ciocîrlan et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Keywords
public debt expectations, economic knowledge, financial literacy, trust