We show that municipalities’ credit constraints can have important effects on local economies through a ratings channel. We identify these effects by exploiting exogenous variation on U.S. municipal bond ratings due to Moody’s recalibration of its ratings scale in 2010. We find that local governments increase expenditures and employment due to an expansion of their debt capacity following a rat...

The paper contributes to the recent growth models debate through a cross-country analysis of drivers before and after 2008 Global Financial Crisis (GFC). It argues that widely used dichotomy export-led versus (debt-financed) consumption-led has lost its usefulness since GFC. Specifically, identifying contributions can give misleading results when economic change. contends Comparative Political ...

We develop a method for identifying and quantifying the fiscal channels that help finance government spending shocks and apply it to postwar U.S. data. We define fiscal shocks as surprises in defense spending and show that they are more precisely identified when defense stock data are used in addition to aggregate macroeconomic data. Our results show that in the postwar period, over 9% of the U...

This paper studies how to protect future generations from expropriation and to induce optimal investment in intergenerational public goods (IPGs), by introducing constitutional restrictions on the tax base. The type of tax-base restrictions that we consider places limits on the tax instruments that the government can use to raise revenue, but not on the level of expenditures or debt. We show th...

We examine the effects of disaggregated government expenditure on investment using fixedand random-effect methods. Using the government budget constraint, we explore the effects of taxand debt-financed expenditure for the full sample, and for sub-samples of developed and developing countries. In general, tax-financed government expenditure crowds out more investment than debtfinanced expenditur...

In HANK, we show that fiscal policy is an appropriate macroeconomic stabilization tool at the ZLB. Fiscal achieves same aggregates and welfare as hypothetically unconstrained monetary by replicating its transmission mechanism. Consumption taxes labor replicate effects of through intertemporal substitution channel. Debt-financed lumpsum transfers a permanent increase in government debt level red...

We examine the effect of fiscal policy on sovereign risk spreads and investigate whether the interaction of fiscal variables with political institutions affect financial markets. Using panel data from emerging market countries, we find that revenue-based adjustment lowers spreads more than spending-based adjustment. Financial markets also react to the composition of spending. Cuts in current sp...

We analyze effects of public debt in a basic endogenous growth model with productive public spending. We demonstrate that a discretionary policy violates the inter-temporal government budget constraint along a balanced growth path. A balanced government budget gives a unique saddle point stable growth path. With a rule based policy, two saddle point stable balanced growth paths can occur, depen...

The “debt-overhang hypothesis” – that households cut back more on their spending in a crisis when they have higher levels of outstanding mortgage debt (Dynan, 2012) seems to be taken for granted by macroprudential authorities several countries policy decisions, as well the international organizations evaluate and comment countries’ policy. Results are presented UK microdata reject debt-overhang...