We review both the theoretical and empirical literature on entrepreneurship and financial frictions, with an emphasis on the heterogeneous and dynamic micro-level implications of financial frictions for macro development.

We provide a quantitative evaluation of the aggregate and distributional impact of microfinance or credit programs targeted toward small businesses. We find that the redistributive impact of microfinance is stronger in general equilibrium than in partial equilibrium, but the impact on aggregate...

Income differences across countries primarily reflect differences in total factor productivity (TFP). More disaggregated data show that the TFP gap between rich and poor countries varies systematically across industrial sectors of the economy: Poor countries are particularly unproductive in...

We quantify the role of financial frictions and the initial misallocation of resources in explaining development dynamics. Following a reform that triggers efficient reallocation of resources, our model economy with financial frictions converges slowly to the new steady state--it takes twice as...

While theoretical models consistently predict that government spending shocks should lead to appreciation of the domestic currency, empirical studies have been stubbornly finding depreciation. Using daily data on U.S. defense spending (announced and actual payments), we document that the dollar...

Following through on pledges made during his election campaign, President Bush proposed and Congress passed a substantial tax cut in 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). Much has been written about the size of the tax cut, its impact on the federal budget, its...

This paper reviews the state of discretionary fiscal policy. Among its findings are: (1) In recent years, U.S. discretionary fiscal policy appears to have become more active in response to both cyclical conditions and a simple measure of budget balance. (2) Considerable uncertainty remains about...

We construct a computational dynamic stochastic overlapping generations general equilibrium model with uncertain lifetimes and explore the impact of policy stickiness (specifically, a major reform will preclude future reforms for a generation) on optimal long-run fiscal policy. Under such...

In this paper, we estimate government purchase multipliers for a large number of OECD countries, allowing these multipliers to vary smoothly according to the state of the economy and using real-time forecast data to purge policy innovations of their predictable components. We adapt our previous...