This paper tries to identify the fiscal sustainability record of democratically and autocratically governed countries by applying various performance indicators (payment defaults, national debt, foreign assets) and also to clarify what effect the characteristics of a regime have on consolidation and intertemporal budgeting efforts in a country. Important economic, social and environmental chall...

We quantify the cost of limited liability rules in a traditional model of investment financing under moral hazard and risk aversion. Under limited liability, we show that external debt and the granting of absolute priority to debtholders are key (but not the unique) ingredients of the optimal financing package. Removing liability limits makes possible a superior contract that punishes the entre...

This paper shows that in a small open economy with downward nominal wage rigidity pegging the nominal exchange rate creates a pecuniary externality. The externality causes unemployment, overborrowing, and depressed consumption. Ramsey optimal capital controls are shown to be prudential in the sense that they tax capital inflows in good times and subsidize external borrowing in bad times. Under ...

Stock returns over the two years surrounding 24 currency devaluations are examined. Using bootstrapped distributions, returns preceding the devaluation are shown to be significantly below normal, in both dollar and local currency terms. Most of the downturn, however, occurs well before the month of the devaluation. Returns following a devaluation are more normal. While industry and company spec...

This paper analyzes the change in the capital structure behavior in a sample of Spanish venture capital (VC) backed firms after the first capital infusion. We find that VC investors contribute to unlisted growing firms in the attraction of other long term sources of funds to continue their growth process. Our results show significant changes in determinants such as tangibility, size and profita...

Using a small open economy framework, we model the composition of capital inflows as the equilibrium outcome of emerging market firms’ financing decisions. We show that debt limits, equity issuing costs, and foreign direct investment search costs generate a financing premium and that the ”cheapest” source of financing depends on the phase of the business cycle and past financing decisions. The ...

A central question in emerging-market macroeconomics is what factors lead countries to accumulate excessive levels of external debt. It is often argued by economic observers and policymakers that emerging markets tend to overborrow when the lending decisions of foreign financial institutions are guided by rough indicators of the emerging country’s macroeconomic performance, and not by careful a...

In this paper I develop a model to investigate the connection between debt relief and current account sustainability. This model can be used as a key input in assessing whether a HIPC country’s real exchange rate is ‘overvalued,’ and will thus need to go through devaluation. The working of the model is illustrated for the case of Nicaragua, a country that in 2002 had one of the highest external...

This is a summary of the report of an expert group meeting on resource mobilization for poverty eradication in the least developed countries held at United Nations Headquarters in New York on 19 and 20 January 2004. The first part of the report provides an overview of the current challenges faced by the LDCs in reducing the high rates of widespread poverty. The second part discusses innovative ...

Political economy theory expects politicians to use budget deficits to engineer an election-timed boom, known as the political business cycle. We challenge and contextualize this view by incorporating the financial constraints faced by governments into an electoral framework. We argue theoretically that the extent of ownership dispersion among creditors has important effects for governments’ po...