Optimal fiscal policy and sovereign debt crises

Autor:	Stefan Niemann, Paul Pichler
Rok vydání:	2020
Předmět:	Economics and Econometrics Public spending Rollover (finance) media_common.quotation_subject Debt Economics Monetary economics Market sentiment Sovereign debt Recession Credit risk Fiscal policy media_common
Zdroj:	Review of Economic Dynamics. 37:234-254
ISSN:	1094-2025
DOI:	10.1016/j.red.2020.02.003
Popis:	This paper studies how sovereign risk – both fundamental and self-fulfilling – shapes the cyclical behavior of optimal fiscal policy. We develop a model with endogenous default costs where market sentiment can induce belief-driven debt rollover crises. Optimal taxes and public spending are generally procyclical, but the incidence of rollover risk gives rise to infrequent episodes of severely countercyclical fiscal activity. These endogenous regime changes are associated with pronounced countercyclical changes in the level of debt. Debt buildups are triggered already by relatively mild recessions, but successful fiscal consolidations occur only in exceptionally good times.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::5c3172334a079f2b37362911f4c3fa5e https://doi.org/10.1016/j.red.2020.02.003 Zobrazit plný text záznamu Full Text from ScienceDirect