This paper focuses on the trade-off faced by governments in deciding the allocation of public expenditures between productivity-enhancing public infrastructures and utility-enhancing public consumption in a two-country model. The results show that a permanent increase in the domestic stock of...

In this essay we study the optimal noncoordinated fiscal policy in a monetary union, where a common and independent monetary authority commits to optimally set the union-wide nominal interest rate. The national governments in the monetary union implement independent fiscal policies by choosing...

This paper examines the effectiveness of labor cost reductions as a means to stimulate economic activity and assesses the differences which may occur with the prevailing exchange rate regime. We develop a medium-scale three-region DSGE model and show that the impact of a cut in employers' social...

Using a narrative account of quarterly discretionary changes in tax liabilities from 1974Q4 to 2018Q2 in a VAR setting, we study whether legislative tax changes affect the trade balance in the United States, Germany, and the United Kingdom. As legislative tax changes we consider (i) all changes,...

In economies with fixed exchange rates, the adjustment to government spending shocks is asymmetric. A fiscal expansion appreciates the real exchange rate but does not stimulate output. A fiscal contraction does not alter the exchange rate, but lowers output. We develop these insights in a...

Recent research has demonstrated that while government expenditures are countercyclical inmost industrialized countries, they tend to be procyclical in developing countries. We develop adynamic political economy model to explain this phenomenon. In the model, public expendituresprovide insurance...

The paper reviews India’s macroeconomic performance and policies since 2000. The first section briefly summarizes key macroeconomic developments regarding economic growth, inflation, external balance, the fiscal situation and aggregate savings and investment. The second section considers some...

Unless free international lending/borrowing is allowed, domestic saving equals domestic investment and hence saving and investment taxes have the identical effect, as is the case in a closed-economy context. However, if it is allowed, households can accumulate foreign assets besides domestic...

We briefly review the theoretical and empirical consequences of discretionary fiscal policy changes, after which we provide our own estimates for the EU countries. A fiscal expansion raises output and consumption and reduces the trade balance. Moreover, the stimulating effect of higher...

In this paper, I argue that international policy coordination requires to include both monetary as well as fiscal policy because both sides include policy instruments that allow the strategic manipulation of the country's terms of trade. Hence, the coordination of one part of national...