This paper presents a brief overview of the extant fiscal situation in South Asian countries. In particular, I emphasize low tax/GDP ratios and inelastic expenditure/GDP ratios which then lead to structurally entrenched fiscal deficits. The paper also reports on the sustainability of fiscal and current account deficits in the South Asian countries. Finally, the paper reports on some important i...

In this paper, we characterize conditions under which interest rate feedback rules that set the nominal interest rate as an increasing function of the inflation rate induce aggregate instability by generating multiple equilibria. We show that these conditions depend not only on the monetaryfiscal regime (as emphasized in the fiscal theory of the price level) but also on the way in which money i...

This paper presents evidence that stringent balanced budget requirements enforced in some U.S. states have exacerbated business cycles in those states. The effect is not apparent directly. However, among states for which fiscal policy may have more macroeconomic consequences (large states), the difference in volatility between states with lenient and strict balanced budget rules is larger (more...

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...

Persson and Tabellini (2003) show that presidential regimes and majoritarian election systems have important effects on fiscal policy, government effectiveness and productivity. Here, their dataset is extended in a number of ways: the number of countries included is increased from 85 to up to 116, and more recent data for both government effectiveness and productivity are used. In replicating a...

This paper studies the choice between centralization and decentralization of fiscal policy in a political economy setting. With centralization, regional delegates vote over agendas comprising sets of regionspecific projects. The outcome is inefficient because the choice of projects is insufficiently sensitive to within-region benefits. The number of projects funded may be non-monotonic in the s...

We study a fiscal policy model in which the government is present-biased towards public spending. Society chooses a fiscal rule to trade off the benefit of committing the government to not overspend against the benefit of granting it flexibility to react to privately observed shocks to the value of spending. Unlike prior work, we characterize rules that are self-enforcing: the government must p...

This article derives optimal fiscal rules within a stochastic model of Keynesian type in the context of Poole (1970) analysis. By using optimal control theory and applying the Hamilton-Jacoby-Bellman equation, we extend the original Poole results concerning the output stabilization properties of monetary policy to the case of fiscal policy. In particular, we look for the optimal setting of gove...

I greatly appreciate the opportunity to testify before this Committee during its consideration of multiyear budgeting processes and possible biennial budgeting reforms in the United States. In particular, I would like to commend the Committee for taking an international perspective on the pitfalls and potentially useful practices involved in setting fiscal policy from a long-term perspective. T...

The existing literature on political budget cycles looks at the temptation for incumbent governments to run a greater deficit before an election by considering the characteristics of the incumbent. We propose here to look at the signals the incumbent receives from the voters. For this purpose, we consider the votes from the previous national elections and see whether they may influence the incu...