Financial Economics, Civil Servants, and Public Debt Policies in New Zealand and Ireland

Combining the method of process tracing with the method of difference, this study explains how the ideas and business practices of financial economics have entered the arena of sovereign debt management in the two pioneer countries New Zealand and Ireland. In both countries Treasury civil servants have been the main change agents but, surprisingly, different causal mechanisms explain how these actors brought financial economics into the reforms. In New Zealand economists had an in-house position within the Treasury and were able to frame the decision-making process (cognitive framing power), while in Ireland finance successfully lobbied senior civil servants who appreciated these efforts (material power). The article explains these different causal mechanisms with the differences in the structure of financial markets and the civil service systems. This interaction between causal mechanisms and their (contextual) scope conditions provide the multiple pathways that lead to the financialization of public finance.