We study the consequences of a large-scale austerity program targeting financially-constrained municipalities in Germany. For identification, we exploit the quasi-random assignment of treatment among equally-distressed municipalities using a difference-in-differences design. The policy helped...

How should public debt be managed when uncertainty about the business cycle is widespread and debt levels are high, as in the aftermath of the last financial crisis? This paper analyzes optimal fiscal policy with ambiguity aversion and endogenous government spending. We show that, without...

We derive the quantitative implications of reducing sustained budget deficits (labeled fiscal stabilizations) in the context of a general equilibrium model of innovation-led growth. In the model, innovation comes from entrant firms creating new products and incumbent firms improving own existing...