How should taxes, government expenditures, the primary and fiscal surpluses and government liabilities be set over the business cycle? We assume that the government chooses expenditures and taxes to maximize the utility of a representative household, utility is increasing in government...

Recent research in both the social and natural sciences has been devoted to increasing our ability to predict disasters, prepare for them and mitigate their costs. Curiously, we appear to know very little about the fiscal consequences of disasters. The likely fiscal impact of a natural disaster...

The United Kingdom employed the McKenna rule to conduct fiscal policy during World War I (WWI) and the interwar period. Named for Reginald McKenna, Chancellor of the Exchequer (1915–16), the McKenna rule committed the United Kingdom to a path of debt retirement, which we show was...

During the sovereign debt crisis, all euro countries have deployed \aus- terity packages", believing that they could regain the path of growth im- plementing structural reforms and cutting government spending. Such policies should have led to an initial decline in GDP followed by recov- ery and...

We outline a dynamic stochastic general equilibrium (DSGE) model with trend extrapo-lation in asset pricing that we fit to quarterly U.S. macroeconomic time series with Baye-sian techniques. To be more precise, we modify the DSGE model in Smets and Wouters (2007) by incorporating asset traders...

This paper introduces heterogeneous households into an otherwise standard sticky-price model with industry-specific labor markets. Households differ in labor incomes and asset markets are incomplete. I show that household heterogeneity affects equilibrium dynamics nontrivially by amplifying...

We study in a general perspective the partial equilibrium incentives and the general equilibrium asset pricing implications of Value-at-Risk (VaR) regulation in continuous time economies with intermediate consumption, stochastic opportunity set, and heterogenous attitudes to risk. Our findings...

We define the notion of 'de facto fiscal space' of a country as the outstanding public debt relative to the de facto tax base, where the latter measures the realized tax collection, averaged across several years to smooth for business cycle fluctuations. We apply this concept to account for the...

We define the notion of 'de facto fiscal space' of a country as the inverse of the outstanding public debt relative to the de facto tax base, where the latter measures the realized tax collection, averaged across several years to smooth for business cycle fluctuations. We apply this concept to...

This paper analyzes the effect of trade liberalization on government spending in a general equilibrium model with a continuum of industries supplying tradable and nontradable goods under monopolistic competition. Trade liberalization is modeled as the opening up of product markets between two...