Austerity measures are frequently enacted when the sustainability of public finances is in doubt. Such doubts are reflected in high sovereign yield spreads and put further strain on government finances. Is austerity successful in restoring market confidence, bringing about a reduction in yield...

Most studies on the relationship between public debt and economic growth implicity assume homegenous debt effects across their samples. We - in accordance with recent literature - challenge this view and state that there likely is a great deal of cross-country heterogeneity in that relationship....

Should the government run fiscal deficits in response to an adverse external shock that warrants transfer of resources from production of non-traded to traded goods? This paper considers normative fiscal policy implications of sectoral adjustment costs in a two-sector model with overlapping...

Local governments in Japan account for about 80 per cent of general government spending when excluding social security expenditures. Therefore, for the implementation of fiscal policy it is important how local governments will behave. On the basis of the economic theories on fiscal federalism it...

Japan's debt-to-gross domestic product (GDP) ratio is the highest among Organisation for Economic Co-operation and Development (OECD) countries. This paper will firstly answer the question of whether Japanese government debt is sustainable. Next, while the Domar condition and Bohn's condition...

This paper examines the pricing of public debt in a quantitative macroeconomic model with government default risk. Default may occur due to a fiscal policy that does not preclude a Ponzi game. When a build-up of public debt makes this outcome inevitable, households stop lending such that the...

The economy of the European Union has not recovered from the impact of the economic and financial crisis. Growth rates remain low and investment activity is weak. This questions current economic policies of the Economic and Monetary Union, known as austerity. In opposition to fiscal contraction...

This paper has two main objectives. The first is to propose a policy architecture that can prevent a very high public debt from resulting in a high tax burden, a government default, or inflation. The second objective is to show that government deficits do not face a financing problem. After...