This paper analyzes the role of nominal assets in ranking intertemporal budget policies in a growing open economy. The budget policies are ranked in terms of the public's intertemporal stock of tax liabilities. Our main result is that, in a small open economy, the valuation of private and public assets is in terms of the exogenous foreign price level under purchasing power parity. This constrai...

The mainstream literature on normative framework on fiscal federalism has been largely developed keeping in view the advanced market economies. It is necessary to modify these before they are applied to developing transitional economies to take account of the characteristics of these economies, legacies of past policies, and the nature of their institutions. The paper analyses the effect of lac...

a r t i c l e i n f o JEL classification: F13 F42 F51 Keywords: Trade war out of fear Risk-dominant equilibrium Global game in trade policies Strategic complementarity Trade retaliation strategies This paper examines why the recent efforts to arrange free trade regimes have failed repeatedly focusing on the increased uncertainties in economic fundamentals and the asymmetric political economic c...

Chapter 12 presents the technical analysis of both expansionary/contractionary fiscal/monetary policy or their policy mix in the framework of Keynesian Theory. As you’ll see in Chapter 13, both Fiscal and Monetary Policies are used to target aggregate expenditure (called aggregate demand when price level is allowed to float)so as to change the equilibrium level of income.Remember, all the concl...

This paper asks whether political competition has played a role in moderating the governance issues that arise in relation to Canada’s fiscal structure. By fiscal structure we mean three distinct but interrelated fiscal dimensions of the state: financial stability, long run size and short run interventions into the private economy, particularly with respect to the business cycle. The distinctiv...

Worldwide monetary and fiscal policies in the past few years have put into sharp relief the fundamental tradeoff between short-run stabilization and long-run sustainability that policymakers face. The paper is organized around this question: How do the effects of routine monetary and fiscal operations designed to achieve macroeconomic stabilization objectives change when the economy moves from ...

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

This paper summarizes the results of a large recent literature on multi year fiscal plans for deficit reduction (austerity). The key results are that deficit reduction policies based upon spending cuts are much less costly in terms of short run output losses than tax based adjustments. . On average fiscal adjustment based upon spending cuts have very samll otput costs and in come cases they are...

Wage Rigidity or Fiscal Redistribution? The Unemployment Bias of Time Consistent Redistributive Policies Because of Time Inconsistency considerations, policymakers underestimate the drawbacks of wage rigidity as a redistributive tool. Consequently, they redistribute inefficiently income from high to low skilled workers. They typically implement too much wage rigidity whereas other means (in par...

The desirability of fiscal constraints in monetary unions depends critically on whether the monetary authority can commit to follow its policies. If it can commit, then debt constraints can only impose costs. If it cannot commit, then fiscal policy has a free-rider problem, and debt constraints may be desirable. This type of free-rider problem is new and arises only because of a time inconsiste...