This study examines the association between the cost of debt capital and corporate governance practices. Utilizing a unique data set of firm-level corporate governance practices that is provided by the Korea Corporate Governance Service (KCGS), this study examines whether sound corporate governance practices reduce agency costs and thus the default risk and cost of debt capital of a firm. The f...

The importance of investing in R&D and knowledge for innovation and growth is now commonly acknowledged. So is the role for structural reforms aimed at making product and labor markets more flexible. More controversial however is the role that the state should play in the growth process. The debate on the role of the state has been revived by the financial crisis to the extent that this crisis ...

We propose a dynamic general equilibrium model that yields testable implications about the fiscal policy run by governments of different political color. Successive generations of voters choose taxation, expenditure, and government debt through repeated elections. Voters are heterogeneous by age and by the intensity of their preferences for public good provision. The political equilibrium switc...

Using the Reinhart-Rogoff dataset, we find a debt threshold not around 90 per cent but around 30 per cent, above which the median real gross domestic product (GDP) growth falls abruptly. Our work is the first to formally test for threshold effects in the relationship between public debt and median real GDP growth. The null hypothesis of no threshold effect is rejected at the 5 per cent signific...

Empirical analyses of labor tax and public debt processes provide prima facie evidence for imperfect government insurance. This paper considers a model in which the government’s inability to commit to future policies or to report truthfully its spending needs renders government debt markets endogenously incomplete. A method for solving for optimal fiscal policy under these constraints is develo...

Exploiting the analogy with the private provision of a public good, this paper studies debt restructuring with an arbitrary number of creditors using mechanism design. Creditors differ in the value they expect to receive in bankruptcy, and this value is private information. As with public goods, too little debt forgiveness is granted in equilibrium relative to the first best. Creditors are more...

The microstructure of the bond market suggests that private information could play a different role in the bond market than in the equity market. In particular, higher quality of private information can reduce the dealer power and estimation risk while having limited effect of increasing information asymmetry among mostly institutional investors. We show that while higher precision of public in...

We analyze how different budgetary rules affect the stability of an economy in a basic endogenous growth model with public debt and a state-dependent consumption tax rate. We show that a discretionary policy implies that the government violates its inter-temporal budget constraint along a balanced growth path, whereas a balanced budget rule guarantees that the economy is stable. A rule based de...

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...

Of the 41 HIPCs, 11 are classified by the IMF and World Bank as conflict-affected. Can debt relief reduce the level of violent conflict in these countries? By providing additional resources to finance broad-based public spending, debt relief could help to redress the grievances that contribute to conflict. It could also reduce the ability of those motivated by greed to recruit followers, since ...