Imperfect altruism between generations may lead to insufficient capital accumulation. We study the welfare consequences of taxing the rent on a fixed production factor, such as land, in combination with age-dependent redistributions as a remedy. Taxing rent enhances welfare by increasing capital investment. This holds for any tax rate and recycling of the tax revenues except for combinations of...

This paper uses a large panel data set to examine the relation between elections and fiscal policy. We find evidence of political budget cycles in both developed and developing countries: government spending increases before elections while revenues fall, leading to a larger deficit in election years. We demonstrate that political budget cycles are much larger in developing countries than in de...

This paper adopts a stochastic overlapping generations framework to analyze the allocation of aggregate financial risks under different social security systems and a majority voting rule. We study whether there will be switches between pay-as-you-go (PAYG) and fully funded (FF) systems in such an economy. We show that in case of a negative aggregate shock, lowincome young individuals will form ...

We show that the fiscal authorities of high-tax countries can lack incentives to combat profit shifting tax havens. Instead, they have focus their enforcement efforts on relocating profits booked by multinationals in other countries, crowding out transactions shift havens, and reducing global payments multinational companies. The predictions our model are motivated supported analysis two new da...

We study fiscal rules using a sovereign default model. A debt-brake (spread-brake) rule imposes ceiling on the deficit when debt (spread) is above threshold. For our benchmark calibration, similar gains can be achieved with optimal or spread brake. However, for “Union” of heterogeneous economies, common brake generates larger than Furthermore, from abandoning may significant economies that are ...

The paper examines the interrelationship between fiscal and monetary policy in a two-country monetary union. The worst scenario occurs when an independent central bank (CB) sets the nominal interest rate and responds to rising government debt/GDP ratios by monetisation. The result is high inflation, high debt/GDP ratios and a large public sector. Government debt and inflation are contained if t...

This paper constructs a stochastic version of an endogenously growing economy with a public good that raises the productivity of private capital. We explore how growth and welfare are influenced by changes in the mean and variance of productive public spending under two alternative financing methods, mixed money–bond financing and wealth-tax financing. In addition, to evaluate the differences b...

Schmitt-Grohé and Uribe (1997) demonstrate that a balanced-budget fiscal policy can induce aggregate instability unrelated to economic fundamentals. The empirical relevance of this result has been challenged by subsequent studies. In this paper we show that such extrinsic instability is an empirically robust plausibility associated with a balanced-budget rule once endogenous capital utilization...

The Keynesian multiplier effect is reinterpreted and several issues that may have misled assessments of the effect of fiscal spending are discussed. It is shown that even in the textbook Keynesian framework some transfer policy ‘reduces’ aggregate demand and that public works spending may completely crowd out private consumption. Useless public works are found to be equivalent to transfers alth...

We test whether the sharp increase in sovereign spreads of euro-area countries with respect to Germany after the explosion of the Greek crisis was due to deteriorating macroeconomic and fiscal fundamentals or to some form of financial contagion. Our analysis includes indicators of domestic and external imbalances which were mostly disregarded by previous studies, and distinguishes between inves...