Consider the finance of an exogenous path of public expenditure, G(t), with taxes and public debt issues. In the absence of unexpected default, borrowing does not allow the government to escape taxes in a present-value sense. But the choices of how much to borrow and in what form affect the timing of tax collections and the ways in which these collections are contingent on economic outcomes. Th...

Government debt levels in industrialized economies are rising rapidly at a time when monetary policy remains constrained by the zero lower bound (ZLB) on policy rates. This confronts policymakers with a formidable challenge. On the one hand, reducing government spending under these circumstances directly curtails demand, potentially undermining economic recovery. On the other hand, delaying con...

This paper uses a New Keynesian framework to study the coordination of fiscal and monetary policies, in response to an inflation shock when the policymaker acts with commitment. We first show that, in the simplest New Keynesian model, fiscal policy plays no part in the optimal policy response, because of the comparative advantage which monetary policy has in the control of inflation. We the...

S ince the onset of the financial crisis in late 2007, the Federal Reserve has injected an astronomical amount of money into the economy through its large-scale asset purchase (LSAP) programs. According to former Fed Chairman Ben Bernanke (2009, p. 5), the essence of LSAP is “credit easing” (CE)—that is, reducing the cost of private borrowing by direct purchases of privately issued debt instead...

This paper presents an overlapping generations model in which children seek to manipulate the size of the end-of-life bequest they receive from the parent. I first use numerical simulations to show this intergenerational strategic behavior does not negate the debt neutrality assertions of Ricardian equivalence. Then, by introducing capital gains and inheritance taxes, I show the crowding out ef...

If debt markets can price the risk of projects accurately, then the interests of shareholders and the regulator diverge. Shareholders see their value maximised by an equity-rewarded executive. However we demonstrate that such executives destroy welfare by selecting excessively risky projects due to two types of government-induced distortions: the debt tax shield and the implicit too-big-to-fail...

This paper explores the implications of the political economy model of Battaglini and Coate (2008) for the behavior of fiscal policy over the business cycle. The model predicts that fiscal policy is counter-cyclical with debt increasing in recessions and decreasing in booms. Public spending increases in booms and decreases during recessions, while tax rates decrease during booms and increase in...

U.S. consumers currently hold $880 billion in revolving debt, with a mean household credit card balance of approximately $6,000. Although economic factors play a role in this societal issue, it is clear that psychological forces also affect consumers' decisions to take on and maintain unmanageable debt balances. We examine three psychological barriers to the responsible use of credit and debt. ...

The paper explores the implications of different autonomous demands, with differing rates of growth, in a demand-led growth model where policy makers are concerned about the ratios of public sector debt to income and external debt to income. The actual growth rate is explained in terms of the growth rate of aggregate demand, with emphasis in the formation of expectations about growth in the lat...

The main purpose of the study is to examine the causal relationship between government revenues and expenditures of the Jordan government over the period from 1990 to 2011 using Granger causality and VECM tests methodology. Which provides channels of causation between government revenues (GR) and government expenditures (GE).The empirical results show that bidirectional causality running betwee...