We use a panel of 155 countries for 1970-2010 to study (two-way) causality between government spending, revenue and growth. Our results suggest the existence of weak evidence supporting causality from expenditures or revenues to GDP per capita and provide evidence supporting Wagner’s Law. JEL: C23, E62, H50.

We estimate the political economy determinants of budget deficit forecast errors. Since the adoption of the Stability Pact, Eurozone governments have manipulated forecasts before elections. The political orientation and the institutional design of governments also affects the quality of forecasts. JEL classifications: H62, H87, C23, C53, E62

Partisanship of state governors affects the efficacy US federal fiscal policy. Using close election data, we find partisan differences in marginal propensity to spend intergovernmental transfers: Republican less than Democratic governors. Correspondingly, Republican-led states have lower debt, (delayed) taxes, and initially economic activity. A New Keynesian model a monetary union implies sizab...

To what extent do bond market reactions to an unexpected deficit shock depend on state-specific politics? To answer this question, we calculate German state bond spreads over government benchmark paper using information from Datastream for the period 2006-2010. We test for a variety of institutional and political factors. We find evidence that investors base risk perceptions on state specific e...

Fiscal Union Consensus Design under the Risk of Autarky* Inspired by the current debate over the future of the monetary union in Europe, this paper provides a simple model for the determination of the conditions of survival of the common good, which requires the creation of an effective fiscal union. We highlight the importance of institutional design and varying decision weights for the enlarg...

This paper investigates empirically the relationship between the pattern of fiscal policy and the demand for international reserves in developing countries, and how this relationship is associated with political risk and conditional access to global capital markets. It finds evidence that for developing countries with low political risk, countercyclical (procyclical) fiscal policies are associa...