How should aggregate public expenditures be traded off against their financing costs? We incorporate public expenditures into a standard neoclassical growth setup with model policy choice as made by a government choosing tax rates and spending so that the resulting competitive equilibrium...

The interaction between a common monetary policy targeting inflation and decentralized fiscal policies aiming at output stability is considered in a setting taking into account interdependencies between countries running via trade links and the common monetary policy. The setting is sufficiently...

In this paper we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic, uninsurable income shocks, where households also differ permanently with respect to their ability to generate income. The welfare criterion we employ is...

The effectiveness of cyclically adjusted balances (CABs) as an indicator of the health of public finances depends on the accuracy with which cyclically adjusted figures can be calculated in real time. This paper measures the accuracy of such figures using a specially constructed real time data...

Economic and monetary reunification in Germany has proved to be more expensive than previously thought - and not just for the Germans. If a `Mezzogiorno' problem of continuing fiscal transfers to the East and possible migration flows westwards are to be avoided, there must be convergence in...

We examine the dynamics of US output and inflation using a structural time varying coefficient VAR. We show that there are changes in the volatility of both variables and in the persistence of inflation. Technology shocks explain changes in output volatility, while a combination of technology,...

In a dynamic optimizing 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,...

A measure of the credibility of monetary policy is the inflation risk premium embodied in nominal yields. This will be time varying and can be estimated by combining the information contained in the nominal term structure of interest rates with that in the real term structure of...

This paper analyses the determinants of public expenditures allocated to investment. We perform welfare analysis in an overlapping generations model with public consumption, public investment, debt and taxes. The optimal public investment share depends positively on the productive contribution...

The paper provides an assessment of the effect of the recent revision of the Stability and Growth Pact (SGP) on the European economies. A set of structural VARs, one for each Eurozone country, is estimated. The estimated models are then used to assess the possible effect of alternative sets of...