The literature has argued that developing countries are unable to adopt counter-cyclical monetary and fiscal policies due to financial imperfections and unfavorable politicaleconomy conditions. Using a world sample of 115 industrial and developing countries for 1984-2008, we find that the level of institutional quality plays a key role in countries' ability to implement counter-cyclical macroec...

This paper considers how environmental policies should respond to macroeconomic downturns. It first explores the implications of the global economic downturn of 2008-09 for environmental policies, focusing in particular on the example of action against climate change. The arguments for and against activist fiscal policies in general are then reviewed, and the case made that a demand-induced dow...

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Recent fiscal interventions have raised concerns about US public debt, future fiscal pressure, and long-run economic growth. This paper studies fiscal policy design in an economy in which: (i) the household has recursive preferences and is averse to both shortand long-run uncertainty, and (ii) growth is endogenously sustained through innovations whose market value is sensitive to the tax system...

Although fiscal policies of central governments sometimes provide modest insurance against regional income shocks, this paper shows that procyclical fiscal policy among provincial governments can easily overwhelm these stabilizing effects. We examine the cyclicality of budget items among provincial governments in seven federations, showing that own-source taxes are generally highly procyclical,...

This paper investigates empirically the relationship between the pattern of fiscal policy and the demand for international reserves in developing countries, and how this relationship is associated with political risk and conditional access to global capital markets. It finds evidence that for developing countries with low political risk, countercyclical (procyclical) fiscal policies are associa...

We investigate both the rational explosive inflation paths studied by (McCallum 2001), and the classification of fiscal and monetary policies proposed by (Leeper 1991), for stability under learning of the rational expectations equilibria (REE). Our first result is that the fiscalist REE in the model of (McCallum 2001) is not locally stable under learning. In contrast, in the setting of (Leeper ...

If voters of different countries adhere to different and deeply rooted cultural norms, when these countries interact their leaders may find it impossible to agree on effi cient policies especially in hard times. Political leaders’actions are bound by a “conformity constraint”that requires them to express policies that do not violate these norms. This inhibits politicians from adopting the optim...