We extend previous work on the sustainability of the government's intertemporal budget constraint by allowing for non-linear adjustment of the fiscal variables, conditional on the sign of budgetary disequilibria and the phase of the economic cycle. Further, our endogenously estimated threshold...

We shed light on the function, properties and optimal size of austerity using the standard sovereign debt model augmented to include incomplete information about credit risk. Austerity is defined as the shortfall of consumption from the level desired by a country and supported by its repayment...

While scholars and pundits alike have expressed concern regarding increasing social polarization based on partisan identity, there has been little analysis of how social polarization impacts voting. In this paper, we incorporate social identity into a principal-agent model of political...

We use a novel quarterly dataset of U.S. states to examine the dynamics and determinants of relative government spending multipliers in the decade surrounding the Great Recession. We find average multipliers that are similar to those that have been reported for the decades preceding the crisis,...

This paper analyses the reaction of fiscal policy to the cycle in OECD countries. The results suggest that while overall government balances were counter-cyclical in the past and more so in economic downturns than in upswings, discretionary fiscal policy was neutral on average. However,...

Using a panel of annual data for 20 countries we show that synchronized fiscal consolidation (stimulus) programmes in different countries make their business cycles more closely linked, especially in the case of fiscal adjustments lasting 2 or 3 years. We also find: (i) little evidence of...

This paper compares the cyclical properties of fiscal policies across the 12 original eurozone countries and the future members from Central and Eastern Europe. For the sample period 1995-2005, the fiscal balance exhibits less inertia and is more counter-cyclical in Central and Eastern European...

In the Great Recession most OECD countries used short-time work (publicly subsidized working time reductions) to counteract a steep increase in unemployment. We show that short-time work can actually save jobs. However, there is an important distinction to be made: While the rule-based component...

This paper provides a comprehensive empirical assessment of the relation between the cyclicality of fiscal policy, output volatility, and economic growth, using a large cross-section of 88 countries over the period 1960 to 2004. Identification of the effects of (endogenous) cyclical fiscal...

How costly are sovereign debt crises? In this paper we study output losses during sovereign default and debt renegotiation episodes since 1980. In contrast to previous work, we account for the severity of default and not only for its occurrence. Specifically, we distinguish between “hard”...