Is the seniority structure of sovereign debt neutral for a government's decision betweendefaulting and raising surpluses? In this paper, we address this question using a model ofdebt crises where a discretionary government endogenously chooses distortionary taxationand whether to apply an...

Is the seniority structure of sovereign debt neutral for a government's decision between defaulting and raising surpluses? In this paper, we address this question using a model of debt crises where a discretionary government endogenously chooses distortionary taxation and whether to apply an...

We build a dynamic model where the economy is vulnerable to belief-driven slow-moving debt crises at intermediate debt level, and rollover crises at both low and high debt levels. Vis-à-vis the threat of slow-moving crises, countercyclical deficits generally welfare-dominate debt reduction...

The authors analyze the effects of government spending cuts on economic activity in an environment of severe fiscal strain, as reflected by a sizeable risk premium on government debt. Specifically, they consider a 'sovereign risk channel,' through which sovereign default risk spills over to the...