This paper proposes a dynamic politico-economic theory of debt, government finance and expenditure. Agents have preferences over a private and a government-provided public good, financed through labor taxation. Subsequent generations of voters choose taxation, government expenditure and debt...

We assess the sustainability of public finances in OECD countries, over the period 1970-2010, using unit root and cointegration analysis, both country and panel based, controlling for endogenous breaks. Results notably show: lack of cointegration – absence of sustainability – between...

This paper explores the political economy of fiscal adjustment. It begins with an examination of the evidence for, and sources of, ‘deficit bias', including political and governance factors, public attitudes, the role of financial markets and imprecision about which debt targets should be...

We assess the sustainability of public finances in OECD countries, over the period 1970-2010, using unit root and cointegration analysis, both country and panel based, controlling for endogenous breaks. Results notably show: lack of cointegration – absence of sustainability – between...

We provide a systematic analysis of fiscal consolidation in a medium-scale dynamic general equilibrium model. Our results show that the choice of the consolidation instrument is very important, not only with respect to the short- and long-run output effects of the different consolidation...

The recent euro area sovereign debt crisis has shown the importance of market reactions for the sustainability of debt. The objective of this paper is to calculate endogenous government debt limits given the markets assessment of the probability to default. The estimated primary balance reaction...

This paper reviews the empirical literature to determine which forms of fiscal consolidation successfully reduce debt-to-GDP ratios and impact economic performance. We perform a cross-country analysis of fiscal adjustments in 26 democracies for 1995–2018 and find that expenditure-based fiscal...

This paper explores the political economy of fiscal adjustment. It begins with an examination of the evidence for, and sources of, ‘deficit bias’, including political and governance factors, public attitudes, the role of financial markets and imprecision about which debt targets should be...

While economists argue that lower budget deficits are required in the developed countries, there is a widely held perception that expansionary fiscal policy helps incumbents to get reelected, an assumption that undelies the view that political budget cycles are widespread. However, this view has...

While economists argue that lower budget deficits are required in the developed countries, there is a widely held perception that expansionary fiscal policy helps incumbents to get reelected, an assumption that underlies the view that political budget cycles are widespread. However, this view...