This paper focuses on the debt recovery channel linking the dynamics of public debt to partial sovereign defaults. We build a simple model which incorporates sovereign default and a debt recovery rule. It depends on a parameter that allows for partial debt recovery. We show that the maximum...

In the last decades, the majority of OECD countries has experienced a continuous increase in public debt. The European debt crisis has prompted a fundamental re-evaluation of public debt sustainability and the looming threat of sovereign debt default. Due to a multitude of large scale events in...

This paper puts the Reinhart-Rogoff dataset to a formal econometric testing to see whether public debt has a negative nonlinear effect on growth if public debt exceeds 90% of GDP. Using nonlinear threshold models, we show that the negative nonlinear relationship between debt and growth is very...

This paper formulates a general theory of how political unrest influences public policy. Political unrest is motivated by emotions. Individuals engage in protests if they are aggrieved and feel that they have been treated unfairly. This reaction is predictable because individuals have a...

We explore the benefits of intergenerational risk-sharing through both private funded pensions and via the public debt. We use a multi-period overlapping generations model with a PAYG pension pillar, a funded pension pillar and a government. Shocks are smoothed via the public debt and variations...

We examine whether US and German state governments pursue sustainable fiscal policies taking into account fiscal transfers. Using panel data techniques we investigate whether the debt-to-GDP ratio had a positive influence on the primary surplus (Bohn-model). We show that including/excluding...

We consider an economy where competing political parties alternate in office. Due to rent-seeking motives, incumbents have an incentive to set public expenditures above the socially optimum level. Parties cannot commit to future policies, but they can forge a political compromise where each...

This study assesses fiscal sustainability in contemporary Spain at the regional level. Spain consists of 17 autonomous regions, two fiscal regimes differing in taxing autonomy, and two path-dependent types of communities with more and less legislatively recognized autonomy. Three of the 17...

I develop a political economy theory of dynamic fiscal competition via public spending and debt. With internationally mobile capital, strategic policies generate two cross-border externalities that voters in each country fail to internalize: (1) an increase in public spending that bolsters...

The paper analyses the linkages from financial developments to public finances. It maps and discusses the transmission channels to fiscal variables. These channels include asset prices, financing conditions, balance sheets of banks, non-banks and central banks and international linkages. The...