We provide a model for analyzing effects of the tax system and spending programs on the determination of government spending and taxpayer welfare and show that tax system or spending program which is suboptimal from a Ramsey point of view can improve taxpayer welfare because the system creates...

Based on a sample of 56 countries, we find that while fiscal policy in the G-7 countries appears to be broadly consistent with Barro's tax smoothing proposition, in developing countries government spending and taxes are highly procyclical (i.e., government spending rises and taxes fall during...

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,...

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...

Many countries, especially developing ones, follow procyclical fiscal polices, namely spending goes up (taxes go down) in booms and spending goes down (taxes go up) in recessions. We provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for...

This paper studies the endogenous determination of financial openness. We outline a framework where financial openness is endogenously determined by the authority's choice of financial repression as a taxation device, and where the private sector determines endogenously the magnitude of capital...