To explain the fact that government spending and tax policy are procyclical in emerging and developing countries, we develop a model for the joint behavior of optimal tax rates and government spending over the business cycle. Our set-up relies on financial frictions, which have been shown to be...

How is a developing country affected by its odious government's ability to borrow in international markets? We examine the dynamics of a country's growth, consumption, and sovereign debt, assuming that the government is myopic and wants to maximize short-term, socially unproductive, spending....

Governments in emerging markets often behave like a "tormented insurer," trying to use non-state-contingent debt instruments to avoid cuts in payments to private agents despite large fluctuations in public revenues. In the data, average public debt-GDP ratios decline as the variability of...