The paper discusses and revisits some of the most popular stories behind the 2001 financial crisis in Argentina, i.e. the prolonged overvaluation of the peso owing to the Currency Board arrangement, the lack of fiscal adjustment, and the negative external environment which triggered a “sudden...

The main rationale for fiscal policy rules is the concern for long term sustainability of public finances, that in a monetary union may affect the other members. Among many other criticisms, the Stability and Growth Pact (SGP) has been seen as contradictory or incomplete because it focuses on...

In the absence of an equalization grant system, like we justify occurs in Spain at the local level of government, those governments that bear a decrease in their level of tax capacity will have to adjust their budget either by increasing their level of tax effort, by reducing their level of...

Uncertainty about the future preferences of the government may induce policy makers to run excessive budget deficits. As a solution to this problem, economists have proposed to impose a binding debt rule. In this paper we argue that a binding debt rule does not eliminate the distortions due to...

All developed countries have government debt, usually a sizeable proportion of output. This paper proposes that governments that cannot commit to future policy choices face a trade-off that explains the level of debt. On the one hand, the government would like to increase debt and delay...

The purposes of this paper are twofold: first, it aims at critically evaluating the solvency criterion, pioneered by Hamilton and Flavin (1986), which is nowadays almost hegemonic in the analysis of public debt sustainability, and at illustrating alternative measures of sustainability grounded...

We postulate a new method of identifying debt which we call Debt Burden (DB). We claim that DB reveals the true debt obligations of the fiscal authority. It is more accurate and transparent. Hence, DB would serve fiscal authority much better in policy making. It is powerful in a sense that it is...

Macroeconomic Policies of the Economic and Monetary Union: Theoretical Underpinnings and Challenges Philip Arestis and Malcolm Sawyer, The Levy Economics Institute and Leeds University Abstract This paper presents two issues: first, an effort to decipher the type of economic analysis and...

This paper argues that the tradtitional way of gauging a country's fiscal policy stance by looking at government budget deficit or cyclically adjusted budget deficits is misleading in the case of China, since a lot of what usually would be considered fiscal policy is conducted via investment by...

In the debate on monetary policy strategies on both sides of the Atlantic, it is now almost a commonplace to contrast the Fed and the ECB by pointing out the former’s flexibility and capacity to adjust rigidity, and the latter’s extreme caution, and obsession with low inflation. In looking...