This paper describes the behavior of tax policies under incomplete financial markets. The government finances a stochastic stream of expenditures by collecting the capital income and the labor income taxes, and issuing a one-period bond which pays state-contingent returns. We show that putting...

This paper analyzes past fiscal consolidation plans and their outcomes in France. It covers the early attempts at fiscal consolidation in the 1970s and the 1980s (Plan Barre and Virage de la Rigueur), the first episode of medium-term fiscal consolidation in 1994-97 ahead of joining the European...

This paper develops a model of optimal government debt maturity in which the government cannot issue state-contingent bonds and the government cannot commit to fiscal policy. In contrast to an environment with full commitment, there is a tradeoff between the cost of funding and the benefit of...

This paper builds a unified model of sovereign debt, default risk, and news shocks. News shocks improve the quantitative performance of the sovereign default model in a number of empirically-relevant dimensions. First, with news shocks, not all defaults occur during downturns. Second, the news...

This paper develops a model of optimal government debt maturity in which the government cannot issue state-contingent bonds and cannot commit to fiscal policy. If the government can perfectly commit, it fully insulates the economy against government spending shocks by purchasing short-term...

Variable and high rates of price inflation in the 1970s and 1980s led many countries to delegate the conduct of monetary policy to "instrument-independent" central banks and to give their central banks a clear mandate to pursue price stability and instrument independence to achieve it. Advances...

Policymakers take into account the possibility of a regime switch and counteract the externalities generated by the alternative regimes. The resulting behavior of inflation and output differs, both qualitatively and quantitatively, from what obtained in regime switches models with simple policy...