During the last three decades the stock of government debt has increased in most developed countries. During the same period international capital markets have been liberalized. In this paper we develop a two-country political economy model with incomplete markets and endogenous government...

Standard real business cycle theory predicts that consumption should be smoother than output, as observed in developed coun- tries. In this paper we provide a novel explanation of the consumption volatility puzzle based on political factors. In our model groups that disagree on the size of...

We study the provision of dynamic incentives to self-interested politicians in an environment in which politicians cannot commit to policies and have private information about the size of government resources. In this environment, citizens discipline politicians by threatening to remove them...