— This study analyzes the effect of fiscal decentralization on health outcomes in China using a panel data set with nationwide county-level fiscal data. We find that more fiscally decentralized provinces have lower infant mortality rates than provinces that are the main spending authority, if certain conditions are met. Key among those conditions are the county governments’ own fiscal capacity ...

This paper examines the effectiveness of fiscal policy in a general equilibrium macromodel with transactions money and an oligopolistic product market. The results suggest that although money may be neutral and play no direct role as policy instrument, its indirect impact on the effectiveness of fiscal policy can be quite substantial. In particular, (i) fiscal policy becomes ineffective as the ...

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...

The paper shows that common fiscal rules, such as a limit to the deficit-output ratio, induce an ‘‘escape clause’’–type fiscal policy, similar to that studied for monetary policy by Flood and Isard (1988 and 1989) and Lohmann (1992): The government resorts to an active stabilization (for example, countercyclical) policy only during ‘‘exceptional times’’ by running deficits in recession phases a...

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 studies the validity of the Modigliani and Miller Irrelevance proposition in the presence of incomplete markets and portfolio restrictions. If the economy is originally in equilibrium and the firm changes its financial plan, we show that there exist state-dependent trading limits under which financial policy is always irrelevant. In addition, the no short-selling constraint usually i...

It is a great pleasure for me to discuss the essay by Karl Brunner; this continues a tradition of discussing each other’s work that dates back at least a decade. Much of Brunner’s massive survey is admirable, reflecting a deep and careful analysis of central issues in fiscal policy, and the way events have changed perceptions of fiscal policy. The comprehensive and up-to-date reference list add...

The current buildup of the U.S. Social Security Trust Fund has caused speculation about both the potential consequences of the buildup under different policy objectives and the fund's management. As is often the case, the search for precedents under similar circumstances abroad has been quite extensive on the part of legislators and U.S. experts in the field of financial policy. This article su...