In a dynamic optimising model with costly tax collection, a tax cut by one nation creates positive externalities for the rest of the world if initial public debt stocks are positive. By reducing tax collection costs, current tax cuts boost the resources available for current private consumption,...

We analyse deflationary bubbles in a model where money is the only financial asset. We show that such bubbles are consistent with the households transversality condition if and only if the nominal money stock is falling. Our results are in sharp contrast to those in several prominent...