We analyze how public debt evolves when successive policymakers have different policy goals and cannot make credible commitments about their future policies. We consider several cases to be able to quantify the effects of imperfect commitment, political disagreement and political turnover. Imperfect commitment drives the long-run level of debt to zero. With political disagreement debt is a size...

In this paper, we analyze the effects of money on the market for durable goods both empirically and theoretically. Using monthly US data on personal expenditures on durable goods and the housing market, we estimate from a VAR the dynamic responses of the price and quantity of durable goods and housing to money supply shocks, assuming only that money is neutral in the long-run. We then estimate ...

This paper uses a two-region, two-period overlapping generations model with international labor mobility to examine the efficacy of using tax policy to internalize the externalities created by international labor migration. While a brain drain tax has a substantial limiting effect on labor migration and a small negative effect on per worker growth, it is found to be a viable solution to the neg...

This paper uses a structural, large dimensional factor model to evaluate the role of ‘news’ shocks (shocks with a delayed effect on productivity) in generating the business cycle. We find that (i) existing small-scale VECM models are affected by ‘non-fundamentalness’ and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a limited role in explainin...

The effects of a Tobin tax on foreign exchange markets have long been disputed. We present an experiment with currency trading on two markets, where either none, one, or both markets are taxed. Our results confirm the hitherto undisputed issues: a tax reduces trading volume, shifts market share to untaxed markets, and leads to negligible tax revenues if tax havens exist. Concerning the controve...

An earlier analysis that compares allocations achievable using inside (private) money to those achievable using outside (government) money is extended. It is shown that outside-money allocations are a subset of inside-money allocations provided that the inside money issued by one issuer can be distinguished from that issued by others. If that recognizability assumption is weakened, then the sub...

Imperfect altruism between generations may lead to insufficient capital accumulation. We study the welfare consequences of taxing the rent on a fixed production factor, such as land, in combination with age-dependent redistributions as a remedy. Taxing rent enhances welfare by increasing capital investment. This holds for any tax rate and recycling of the tax revenues except for combinations of...

This paper uses a large panel data set to examine the relation between elections and fiscal policy. We find evidence of political budget cycles in both developed and developing countries: government spending increases before elections while revenues fall, leading to a larger deficit in election years. We demonstrate that political budget cycles are much larger in developing countries than in de...

This paper adopts a stochastic overlapping generations framework to analyze the allocation of aggregate financial risks under different social security systems and a majority voting rule. We study whether there will be switches between pay-as-you-go (PAYG) and fully funded (FF) systems in such an economy. We show that in case of a negative aggregate shock, lowincome young individuals will form ...