Time-consistent fiscal policy in a debt crisis
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- dc.contributor.author Balke, Neele L.ca
- dc.contributor.author Ravn, Morten O.ca
- dc.date.accessioned 2016-12-09T09:43:26Z
- dc.date.available 2016-12-09T09:43:26Z
- dc.date.issued 2016-09
- dc.description.abstract We analyze time-consistent fiscal policy in a sovereign debt model. We consider a production economy that incorporates feedback from policy to output through employment, features inequality though unemployment, and in which the government lacks a commitment technology. The government's optimal policies play off wedges due to the lack of lump-sum taxes and the distortions that taxes and transfers introduce on employment. Lack of commitment matters during a debt crises - episodes where the price of debt reacts elastically to the issuance of new debt. In normal times, the government sets procyclical taxes, transfers and public goods provision but in crisis times it is optimal to implement austerity policies which minimize the distortions deriving from default premia. Could a third party provide a commitment technology, austerity is no longer optimal.ca
- dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
- dc.format.mimetype application/pdfca
- dc.identifier.uri http://hdl.handle.net/10230/27719
- dc.language.iso engca
- dc.relation.ispartofseries ADEMU Working Paper Series;49
- dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
- dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.ca
- dc.rights.accessRights info:eu-repo/semantics/openAccessca
- dc.rights.uri http://creativecommons.org/licenses/by/4.0/ca
- dc.subject.keyword Time-consistent fiscal policyen
- dc.subject.keyword Sovereign debten
- dc.subject.keyword Debt crisisen
- dc.subject.keyword Austerityen
- dc.title Time-consistent fiscal policy in a debt crisisca
- dc.type info:eu-repo/semantics/workingPaperca