The excess procyclicality of fiscal policy is commonly viewed as a central malaise in emerging economies. We document that procyclicality is more pervasive in countries with higher sovereign risk and provide a model of optimal fiscal policy with nominal rigidities and endogenous sovereign...

Emerging countries in many cases are more crisis-prone than highly developed industrialized countries. This is in many cases due to a weak or volatile financial sector. The best policy to strengthen crisis resistance is the building up of a sound financial position. A sound financial position of...