Governments in emerging markets often behave like a “tormented insurer,” who would like to smooth government outlays given the randomness of public revenues in an imperfect world where the only public debt instrument is a non-state-contingent bond denominated in units of tradable goods. How can a fiscal authority tell if the stock of public debt is consistent with fiscal solvency in this enviro...

Previous studies have found large negative e¤ects of direct democracies on government spending. Since they do not control for preference heterogeneity, these estimates su¤er from omitted variable bias. If citizens in areas with stronger direct democracy have lower tastes for government, the restraining e¤ect of institutions is overstated. Exploiting a unique dataset in Switzerland, we demonstra...

Based on a panel of 24 OECD countries this present paper shows that the total government sector is contracted by Baumol’s cost disease. The most affected government services are education and healthcare. Furthermore, this paper shows that Baumol’s cost disease produces adverse consequences under a balanced budget rule such as a debt brake, which is a key element of the EU Fiscal Compact. Govern...

Given an integer u > 1, Q vector (61, 62, . . . ,6,-i) of nonnegative integers, end en undirected graph G = (V, E), an L(h62,. . . ,6,-I)-coloring of G is Q function f from the vertex set V to Q set of nonnegative integers such that If(u) f (v)l 2 &, if d(u,v) = i, 1 < i < u 1, where d(u, v) is the distance (i.e. the minimum number of edges) between the vertices u and v. An optimal L(&, 62,. . ...

This paper analyzes optimal progressive capital income taxation in the infinite horizon dynastic model. It shows that progressive taxation is a much more powerful and useful tool to redistribute wealth than linear taxation on which previous literature has focused. We consider progressive capital income tax schedules taking a simple two-bracket form with an exemption bracket at the bottom and a ...

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. In oil-dependent countries, a major issue is how to stabilize...

This paper explores the role of public debt and fiscal deficits on factor productivity in an economy with credit market frictions and heterogeneous firms. When credit market conditions are sufficiently weak, low interest rates permit the government to run Ponzi schemes so that permanent primary deficits can be sustained. For small enough deficit ratios, the model has two steady states of which ...

We study the determinants of sovereign bond yield spreads across 10 EMU countries between Q1/1999 and Q1/2010. We apply a semiparametric time-varying coefficient model to identify, to what extent an observed change in the yield spread is due to a shift in macroeconomic fundamentals or due to altering risk pricing. We find that at the beginning of EMU, the government debt level and the general i...