Gonçalves, Carlos Eduardo; Guimaraes, Bernardo - In: Journal of International Economics 95 (2015) 1, pp. 68-82
This paper studies fiscal policy in a model of sovereign debt and default. A time inconsistency problem arises: since the price of past debt cannot be affected by current fiscal policy and governments cannot credibly commit to a certain path of tax rates, debtor countries choose suboptimally low...
