In fiscal interaction, a policy is evolutionarily stable if, once adopted by all governments, jurisdictions that deviate from it fare worse than those that stick to it. Evolutionary stability is the appropriate solution concept for models of imitative learning (policy mimicking). We show that...

In a monetary union, the interaction between several governments and a single central bank is plagued by several sources of deficit bias, including common pool problems. Each government has strong preferences over local spending and taxation but suffers only part of the costs of union-wide...

Recent theoretical research suggests that financing sub-national governments' expenditure out of own revenue sources is linked to more responsible budgeting, because the financial implications of spending decisions then are internalized within a jurisdiction. We test this proposition empirically...

It is widely debated whether a monetary union has to be accompanied by a fiscal transfer scheme to accommodate asymmetric shocks. We build a model of a monetary union with a central bank and two heterogeneous countries that are linked by a fiscal transfer scheme with repercussions on monetary...

Predicting available tax revenue accurately is a key step of fiscal policy. It has recently been shown that revenue projection errors have a direct impact on fiscal deficits. In this paper, we explore the relationship between the ideology of the finance minister and tax revenue projection...

This paper evaluates the effects of policy interventions on sectoral labour markets and the aggregate economy in a business cycle model with search and matching frictions. We extend the canonical model by including capital-skill complementarity in production, labour markets with skilled and...

This paper first reviews the conceptual case for, and appropriate design of, fiscal policies to address major externalities associated with energy use — global warming, local air pollution, and various side effects (e.g., congestion) from motor vehicles. Techniques for (roughly) estimating the...

In this paper we analyze the sustainability of public finances in the states (Laender) of the Federal Republic of Germany using an unprecedentedly comprehensive fiscal dataset for the time period from 1950 to 2011 for West German Laender and 1991 to 2011 for East German Laender, respectively. In...

This paper provides new evidence on the sustainability of public finances in German states (Laender) by exploiting a newly compiled database covering the years 1950‐2011. Unlike previous studies on Germany, we analyze fiscal sustainability by applying “second generation” panel...

An economy with clean and dirty intermediate inputs may fall into a trap characterized by low environmental quality and low life expectancy, while the others converge to opposite steady states. We propose new strategies towards sustainable growth. They include: (i) taxes (subsidies) imposed on...