We construct a general equilibrium model of economic growth and optimally chosen fiscal policy, in which individuals compete with each other for a share of government spending and two political parties can alternate in power according to an exogenous reelection probability. The main prediction...

The potential importance of fiscal policy in influencing inflation has recently been highlighted, following Woodford (1998), under the heading of the ‘Fiscal Theory of the Price Level’ (FTPL). Some authors have suggested that this theory provides a rationale for the Pact for Stability and...

The potential importance of fiscal policy in influencing inflation has recently been highlighted, following Woodford (1995), under the heading of the ‘Fiscal Theory of the Price Level’ (FTPL). Applications of this theory to open economies operating under flexible exchange rates has suggested...

Recent attempts to incorporate optimal fiscal policy into New Keynesian models subject to nominal inertia, have tended to assume that policy makers are benevolent and have access to a commitment technology. A separate literature, on the New Political Economy, has focused on real economies where...

We incorporate an uncoordinated redistributive struggle for extra fiscal privileges into an otherwise standard dynamic stochastic general equilibrium model. The main aim is to get model-consistent quantitative evidence of the extent of rent seeking. Our work is motivated by the common belief...

This paper examines the issue of fiscal sustainability in emerging market countries and industrial countries. We highlight the importance of the time series properties of the primary surplus and debt, and find evidence of a positive long run relationship. Consequently we emphasise, that...

This paper revisits the relationship between fiscal size and economic growth. Our work differs from the empirical growth literature because this relationship depends explicitly on the efficiency of the public sector. We use a sample of 64 countries, both developed and developing, in four 5-year...

This paper examines the effect of asset price volatility on fiscal policy stance. We find that asset price volatility affects the volatility of discretionary fiscal policy in a positive and significant manner, which according to Fatas and Mihov (2003) has negative repercussions on output...

This paper uses a Dynamic General Equilibrium model that incorporates a detailed fiscal policy structure to examine how changes in the tax mix influence economic activity and welfare in the Greek economy. The results suggest that tax reforms that reduce the labour and capital income tax rates...

We consider optimal monetary and fiscal policies in a New Keynesian model of a small open economy with sticky prices and wages. In this benchmark setting monetary policy is all we need - analytical results demonstrate that variations in government spending should play no role in the...