Private investment is the principal transmission channel through which fiscal policy affects growth in high-income countries. In low-income countries, governance and also other considerations suggest that the primary channel is factor productivity. Empirical results reported in this paper...

We introduce a new suite of macroeconomic models that extend and complement the Debt, Investment, and Growth (DIG) model widely used at the IMF since 2012. The new DIG-Labor models feature segmented labor markets, efficiency wages and open unemployment, and an informal non-agricultural sector....

Recurrent concerns over debt sustainability in emerging and developed nations have prompted renewed debate on the role of fiscal rules. Their optimality, however, remains unclear. We provide a quantitative analysis of fiscal rules in a standard model of sovereign debt accumulation and default...

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 estimates the causal effect of fiscal rules on political budget cycles in a sample of 67 developing countries over the period 1985-2007. We exploit the geographical pattern in the adoption of fiscal rules to isolate an exogenous source of variation in the adoption of national fiscal...

The paper studies the effect of additional government revenues on political corruption and on the quality of politicians, both with theory and data. The theory is based on a version of the career concerns model of political agency with endogenous entry of political candidates. The evidence...

IMF lending practices respond to economic conditions but are also sensitive to political-economy variables. Specifically, the sizes and frequencies of loans are influenced by a country's presence at the Fund, as measured by the country's share of quotas and professional staff. IMF lending is...

Why do countries delay stabilizations of large and increasing budget deficits and inflation? And what explains the timing of reforms? We use the war of attrition model as a guidance for our empirical study on a vast sample of countries. We find that stabilizations are more likely to occur when...

In recent years, analysts and policy makers alike have been evaluating the nexus between exchange rates and macroeconomic stability. Among the most important questions is why have some countries adopted rigid, including fixed, exchange-rate paper addresses this question from a political economy...

This paper explores the relationship between the degree of division or fractionalization of a country’s population (along ethnolinguistic and religious dimensions) and both political instability and government consumption, using a neoclassical growth model. The principal idea is that greater...