This paper argues that the key issue for defining and solving the Eurozone's (EZ) difficulties lies in readjusting the relationship between the centre and the periphery of the EZ. Our argument proceeds in two steps. Firstly, the basic finance problem of a centre-periphery system is captured by a...

Using a firm-bank panel of more than 1m German firms over 2010-2016, we document that local public bank lending to municipalities crowds out private investment. Our results show how crowding out can happen in a developed economy characterized by low interest rates and fiscal austerity. Our...

Using a firm-bank panel of more than 1m German firms over 2010-2016, we document that local public bank lending to municipalities crowds out private investment. Our results show how crowding-out can happen in a developed economy characterized by low interest rates and fiscal austerity. Our...

Using a firm-bank panel of more than 1m German firms over 2010-2016, we document that local public bank lending to municipalities crowds out private investment. Our results show how crowding-out can happen in a developed economy characterized by low interest rates and fiscal austerity. Our...

Over 2010-2016, municipal debt in Germany crowded out private investment worth 1 percent of GDP. Forced to lend to municipalities by their statutes, local public banks compensated for declining municipal-debt yields by charging higher rates to firms in Germany’s locally segmented credit...

With government debt diverging among countries, it is essential for companies to be able to easily and accurately determine business opportunities across country borders. Liquidity of a country is important for it controls the available money left for businesses to operate within a country....

What are the macroeconomic effects of tax adjustments in response to large public debt shocks in highly integrated economies? The answer from standard closed-economy models is deceptive, because they underestimate the elasticity of capital tax revenues and ignore crosscountry spillovers of tax...

Europe's debt crisis casts doubt on the effectiveness of fiscal austerity in highly-integrated economies. Closed-economy models overestimate its effectiveness, because they underestimate tax-base elasticities and ignore cross-country tax externalities. In contrast, we study tax responses to debt...

The existing theoretical literature on fiscal competition has to a large extent ignored the role of government debt as a determinant of taxes and productive public spending. We develop a simple model of fiscal competition with government borrowing. If a default on government debt is no option,...

The implications of high indebtedness for strategic tax setting in internationally integrated capital markets have found little attention so far. We analyze when and how changes in initial debt levels affect the distribution of economic activity across space. When public borrowing is...