This paper studies fiscal policy design in an economy in which (i) the representative household has recursive preferences, and (ii) growth is endogenously sustained through innovations whose market value depends on the tax system. By reallocating tax distortions through debt, fiscal policy...

The surge in public debt triggered by the financial crisis has raised uncertainty about future tax pressure and economic activity. We examine the asset pricing effects of fiscal policies in a production-based general equilibrium model in which taxation affects corporate decisions by: i)...

In the wake of rising inflation in the aftermath of unprecedented debt financed stimulus packages, we ask: Can governments use real bonds (TIPS) as part of their debt portfolio to commit to stable inflation rates? We propose a novel framework of optimal debt management in the presence of sticky...

Elevated levels of government debt raise concerns about their effects on long-term growth prospects. Using the cross section of US stock returns, we show that (i) high-R&D firms are more exposed to government debt and pay higher expected returns than low-R&D firms; and (ii) higher levels of the...