This paper studies the different economic configurations that may give rise to incomplete fiscal decentralization, with the vertical imbalance problem associated to it. Particularly, we look at an economy which has given up monetary policy and cannot monetize national or sub-national government...

This paper investigates how government debt affects exchange rate behavior. In a two-country general-equilibrium setting, it shows that the exchange rate is directly related to the effective price of public debt. Changes in the present value of the stream of future surpluses alter the expected...