Uncertainty about the future preferences of the government may induce policy makers to run excessive budget deficits. As a solution to this problem, economists have proposed to impose a binding debt rule. In this paper we argue that a binding debt rule does not eliminate the distortions due to...

Interest rates on public debt have for several years now fallen short of GDP growth rates in much of the Western world. In his presidential address to the AEA Blanchard argued that this implies that there are no fiscal costs to high debt (Blanchard, 2019).1 In this paper we argue that the safe...

Conventional wisdom teaches that the output response upon a fiscal expansion is higher under fixed than floating exchange rates for a small open economy. We analyse the effects of fiscal expansions using a New Keynesian model and find that this result reverses in times of sovereign default risk....

The sovereign debt crisis triggered a process of reforms in European economic governance that pushed for technocratic handling of budget decisions following standardized procedures, target measures, and indicators for fiscal monitoring. This shift, aimed at producing more stability and less...

In most rich democracies one finds a tendency for the share in public finance that is available for discretionary spending to shrink. This is because tax revenues do not keep pace with simultaneous increases in fixed expenditures and growing pressures for fiscal consolidation. The present paper...

In the wake of the financial crisis, most developed countries have entered a period of prolonged budgetary austerity. While the success of austerity programs is still unclear, it is also an open question what success would mean for activist government in the long run. This paper rejects the...

How can we determine when an existing institutional path or trajectory is ending and being replaced with a new one? How does such a process take place? How can we distinguish between institutional innovation within an existing trajectory and a switchover to a new trajectory or path? This paper...

This paper challenges the focus on budget deficits that permeates the literature on fiscal policy. It analyzes countries running budget surpluses and asks why some of them preserved these surpluses while others did not. Whereas several OECD members recorded surpluses for just a few years,...