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



public debt expectations; economic knowledge; financial literacy; trust


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.


Alesina, A., & Tabellini, G. (1990). A positive theory of fiscal deficits and government debt. The Review of Economic Studies, 57(3), 403-414.

Alesina, A., Carloni, D., & Lecce, G. (2012). The electoral consequences of large fiscal adjustments. In A. Alesina, D. Carloni & G. Lecce (Eds.), Fiscal policy after the financial crisis (pp. 531-570). University of Chicago Press.

Allers, M., De Haan, J., & De Kam, F. (1998). Using survey data to test for Ricardian equivalence. Public Finance Review, 26(6), 565-582.

Armantier, O., Nelson, S., Topa, G., Van der Klaauw, W., & Zafar, B. (2016). The price is right: Updating inflation expectations in a randomized price information experiment. Review of Economics and Statistics, 98(3), 503-523.

Beckmann, E., & Stix, H. (2015). Foreign currency borrowing and knowledge about exchange rate risk. Journal of Economic Behavior & Organization, 112, 1-16.

Badarinza, C., & Buchmann, M. (2009, September). Inflation perceptions and expectations in the euro area: the role of news (Working Paper No. 1088).

Brender, A., & Drazen, A. (2008). How do budget deficits and economic growth affect reelection prospects? Evidence from a large panel of countries. American Economic Review, 98(5), 2203-20.

Bruine de Bruin, W., van der Klaauw, W., & Topa, G. (2011, April). Expectations of inflation: The biasing effect of thoughts about specific prices (Staff Report No. 489).

Cavallo, A., Cruces, G., & Perez-Truglia, R. (2017). Inflation expectations, learning, and supermarket prices: Evidence from survey experiments. American Economic Journal: Macroeconomics, 9(3), 1-35.

Choi, E., & Woo, J. (2010). Political corruption, economic performance, and electoral outcomes: A cross-national analysis. Contemporary Politics, 16(3), 249-262.

Citrin, J., & Stoker, L. (2018). Political trust in a cynical age. Annual Review of Political Science, 21, 49-70.

D'Acunto, F., Hoang, D., & Weber, M. (2018, May). Unconventional fiscal policy (Working Paper No. 108).

De Simone, E., Cicatiello, L., Gaeta, G. L., & Pinto, M. (2022). Expectations about future economic prospects and satisfaction with democracy: Evidence from European countries during the COVID-19 crisis. Social Indicators Research, 159(3), 1017-1033.

Duch, R. M., & Stevenson, R. T. (2008). The economic vote: How political and economic institutions condition election results. Cambridge University Press.

Hilscher, J., Raviv, A., & Reis, R. (2022). Inflating away the public debt? An empirical assessment. The Review of Financial Studies, 35(3), 1553-1595.

Karadja, M., Mollerstrom, J., & Seim, D. (2017). Richer (and holier) than thou? The effect of relative income improvements on demand for redistribution. Review of Economics and Statistics, 99(2), 201-212.

Kuziemko, I., Norton, M. I., Saez, E., & Stantcheva, S. (2015). How elastic are preferences for redistribution? Evidence from randomized survey experiments. American Economic Review, 105(4), 1478-1508.

Lewis-Beck, C., & Martini, N. F. (2020). Economic perceptions and voting behavior in US presidential elections. Research & Politics, 7(4), 2053168020972811.

Lewis-Beck, M. S., & Stegmaier, M. (2013). The VP-function revisited: a survey of the literature on vote and popularity functions after over 40 years. Public Choice, 157(3), 367-385.

Lewis‐Beck, M. S., Nadeau, R., & Elias, A. (2008). Economics, party, and the vote: Causality issues and panel data. American Journal of Political Science, 52(1), 84-95.

Lin, C. A., & Bates, T. C. (2022). Smart people know how the economy works: Cognitive ability, economic knowledge and financial literacy. Intelligence, 93, 101667.

Lockerbie, B. (1991). Prospective economic voting in U. S. House elections, 1956-88. Legislative Studies Quarterly, 16(2), 239-261.

Loveless, M., & Binelli, C. (2020). Economic expectations and satisfaction with democracy: evidence from Italy. Government and Opposition, 55(3), 413–429.

Lusardi, A., & Mitchell, O. S. (2017). How ordinary consumers make complex economic decisions: Financial literacy and retirement readiness. Quarterly Journal of Finance, 7(03), 1750008.

Malmendier, U., & Nagel, S. (2016). Learning from inflation experiences. The Quarterly Journal of Economics, 131(1), 53-87.

Manski, C. F. (2004). Measuring expectations. Econometrica, 72(5), 1329-1376.

Marien, S., & Hooghe, M. (2011). Does political trust matter? An empirical investigation into the relation between political trust and support for law compliance. European Journal of Political Research, 50(2), 267-291.

Markus, G. B. (1988). The impact of personal and national economic conditions on the presidential vote: A pooled cross-sectional analysis. American Journal of Political Science, 32(1), 137-154.

Mayer, T. (1995). Doing economic research. Edward Elgar Publishing.

Nadeau, R., & Lewis-Beck, M. S. (2001). National economic voting in US presidential elections. The Journal of Politics, 63(1), 159-181.

Roth, C., Settele, S., & Wohlfart, J. (2020). Beliefs about public debt and the demand for government spending. Journal of Econometrics, 231(1), 165-187.

Seyd, B. (2015). How do citizens evaluate public officials? The role of performance and expectations on political trust. Political Studies, 63(1), 73-90.

Shapiro, M. D., & Slemrod, J. (2009). Did the 2008 tax rebates stimulate spending?. American Economic Review, 99(2), 374-79.

Streeck, W. (2014). The politics of public debt: Neoliberalism, capitalist development and the restructuring of the state. German economic review, 15(1), 143-165.

Walstad, W. B., & Rebeck, K. (2002). Assessing the economic knowledge and economic opinions of adults. The quarterly review of economics and finance, 42(5), 921-935.

Wobker, I., Lehmann-Waffenschmidt, M., Kenning, P., & Gigerenzer, G. (2012, October). What do people know about the economy? A test of minimal economic knowledge in Germany (Discussion Paper Series in Economics No. 03/12).

Zak, P. J., & Knack, S. (2001). Trust and growth. The Economic Journal, 111(470), 295-321.




How to Cite

CIOCÎRLAN, C., STANCEA, A., & STOICA, V. (2023). Public Debt Expectations: The More You Know about Public Debt, the Less Optimistic You Are . Management Dynamics in the Knowledge Economy, 11(2), 190–207. Retrieved from