Theories of fiscal illusion and political competition have different implications for (i) the causal relationships between taxes and spending, and (ii) government size. These are tested using data from u.s. states from 1950 to 1990. We find evidence that greater political competition generally...

We undertake tests of whether long term data from the U.S. and U.K. are consistent with the intertemporal government budget constraint and the intertemporal external borrowing constraint being satisfied in expected value terms, both individually and simultaneously. An historical perspective is...

In this paper, we use an open economy DGE model (SIGMA) to assess the quantitative effects of fiscal shocks on the trade balance in the United States. We examine the effects of two alternative fiscal shocks: a rise in government consumption, and a reduction in the labor income tax rate. Our...

Theory predicts that a nation's stochastic intertemporal budget constraint is satisfied if net foreign assets (NFA) are integrated of any finite order, or if net exports (NX) and NFA satisfy an error-correction specification with a residual integrated of any finite order. We test these...

We investigate the possibility that the large current account deficits of the U.S. are the outcome of optimizing behavior. We develop a simple long-run world equilibrium model in which the current account is determined by the expected discounted present value of its future share of world GDP...