A macro model is developed incorporating the productive e®ects of public expenditure, but also allowing for congestion. The Pigouvian tax rate to correct for the distortion caused by congestion is found and the optimal level of public expenditure is characterized. JEL Classi ̄cation Numbers: E62, H54 Corresponding author: John Bennett, Department of Economics and Finance, Brunel university, Uxbr...

This paper investigates currency and financial crises in an optimizing general equilibrium model. It is shown that a rise in current and expected future budget deficits generates a real exchange rate appreciation and a decumulation of external assets, leading up to a currency crisis when foreign reserves approximate a critical level. Strong empirical support for our model is obtained by a probi...

This paper assesses whether the UK public finances were sustainable for the period 1919 to 2001 using a nonlinear representation of the debt to GDP ratio and thus provides a more robust test of debt sustainability. Empirical evidence supports debt sustainability. Moreover, the ESTAR representation is evidence that sustainability is the result of active debt management rather than tax-smoothing....

Abstract We examine the stance of fiscal policy for 32 OECD countries from 1986 to 2023 by comparing each country-year observation signs output gap and change in cyclically adjusted budget balance. find that policies are often pro-cyclical. test possible explanations using comparative statistics observations with pro- counter-cyclical policies. Our evidence suggests rules institutional quality ...

US federal transfers to individuals are large, countercyclical, vary geographically, and often credited with helping stabilize regional economies. This paper estimates the short-run effects of these using plausibly exogenous variation in temporary stimulus payments permanent Social Security benefit increases. States that received larger tended grow faster contemporaneously, a multiplier around ...

The hoped-for silver lining of euro-area austerity programs was to raise external competitiveness and improve current accounts. Using product- industry-level data for 12 countries over the period 1999–2018, we show that reductions in government spending reduce prices wages but only products with low import content industries export shares. This leads asymmetric expenditure switching, net export...

Given the unforeseen and uncertain circumstances during pandemic, role of government expenditure becomes extremely relevant in sustaining lives livelihoods masses. This brings forth public sector deficit as a key issue macroeconomic policy debate. article aims at investigating effects an unanticipated adverse shock like COVID-19, on real value debt, small open economy, consisting traded non-tra...

We study the cyclical behavior of fiscal policy to explain why some countries exhibit pro-cyclical fiscal policy stances–being expansionary in good times and contractionary in bad times. We develop a model that links the polarization of preferences over fiscal spending to the pro-cyclicality bias. We then present evidence that social polarization as measured by income inequality and educational...

Stagnation as the new norm and fiscal policy are examined in a New Keynesian model with adaptive learning determining expectations. We impose inflation and consumption lower bounds, which can be relevant when agents are pessimistic. The inflation target is locally stable under learning. Pessimistic initial expectations may sink the economy into steady-state stagnation with deflation. The deflat...

This paper shows theoretically and empirically that an aggregate Euler equation relates the growth rate of per capita consumption to the real interest rate, the ratio of private wealth plus asset income to consumption, and the ratio of social security wealth to consumption. Using the estimated Euler equation, the paper then calculates the steady-state effects of social security reform. Reforms ...