The conventional wisdom regarding the political consequences of large reductions of budget deficits is that they are very costly for the governments which implement them: they are punished by voters at the following elections. In the present paper, instead, we find no evidence that governments...

As governments around the world contemplate slashing budget deficits, the "expansionary fiscal consolidation hypothesis" is back in vogue. I argue that, as a statement about the short run, it should be taken with caution. I present four detailed case studies, two - Denmark and Ireland -...

This paper deals with several issues regarding the causes and implications of recent and projected U.S. federal budget deficits. It considers why deficits have remained so large in spite of deficit reduction efforts, evaluates the impact of the recent policies of the Clinton administration, and...

We examine austerity in advanced economies since the Great Recession. Austerity shocks are reductions in government purchases that exceed reduced-form forecasts. Austerity shocks are statistically associated with lower real GDP, lower inflation and higher net exports. We estimate a...

We study optimal fiscal and redistributive policies in an open economy without commitment. Due to its redistributive motives, the government's incentive to default on its external debt is affected by inequality. We show that in equilibrium the economy endogenously fluctuates between two regimes....

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...

This paper makes two contributions. First, we examine the macroeconomic implications of Puerto Rico's Fiscal Plan that was certified in March 2017 for fiscal years 2017-18 to 2026-27. Second, we perform a Debt Sustainability Analysis (DSA) that incorporates the expected macroeconomic dynamics...

Over the past four decades, government debt as a fraction of GDP has been on an upward trajectory in advanced economies, approaching levels not reached since World War II. While normative macroeconomic theories can explain the increase in the level of debt in certain periods as a response to...

We consider public debt from a long-term historical perspective, showing how the purposes for which governments borrow have evolved over time. Periods when debt-to-GDP ratios rose explosively as a result of wars, depressions and financial crises also have a long history. Many of these episodes...

Expectations of transfers by central governments incentivize overborrowing by local governments. In this paper, we ask if fiscal rules can reduce overborrowing if central governments cannot commit. We study a model in which the central government's type is unknown and show that fiscal rules...