Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
963027 | Journal of International Economics | 2015 | 15 Pages |
Abstract
This paper studies fiscal policy in a model of sovereign debt and default. A time inconsistency problem arises: since the price of past debt cannot be affected by current fiscal policy and governments cannot credibly commit to a certain path of tax rates, debtor countries choose suboptimally low fiscal adjustments. An international organization, capable of designing a contract that coaxes debtors into a tougher fiscal stance via the provision of cheap senior lending in times of crisis, can work as a commitment device and improve social welfare.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Carlos Eduardo Gonçalves, Bernardo Guimaraes,