A time-varying stochastic devaluation risk is introduced in a model of exchange rate target zones. The model produces realistic patterns of covariation between exchange rates and interest rate differentials, which previous target zone models have been unable to do. A 'drift adjustment' method to...

The internal market in Europe will greatly increase the international mobility. How will this affect fiscal policy in different countries? The authors consider taxation of capital in a two-country model where a democratically chosen government in each country chooses tax policy. Higher capital...

This paper develops a simple model to analyse how a lack of political competition may lead to policies that hinder economic growth. We test the predictions of the model on panel data for the US states. In these data, we find robust evidence that lack of political competition in a state is...