This paper proposes indicators to assess government debt sustainability in the medium and long term. We follow the methodological approach by Bohn (2008) and distinguish three channels that contribute to sustainable government finances: economic growth, real interest payments and fiscal...

Keynesian theory predicts output responses upon a fiscal expansion in a small open economy to be larger under fixed than under floating exchange rates. We analyse the effects of fiscal expansions using a New Keynesian model and find that the reverse holds in the presence of sovereign default...

Large banks derive a funding advantage from being too-big-to-fail, while small banks do not. To estimate the funding advantage we explain the CDS spreads of small banks in six major European countries during the crisis by market fundamentals and bank-specific characteristics. Next, we...

This paper derives and estimates rules for fiscal policy that prescribe the optimal response to changes in unemployment and debt. We combine the reduced-form model of the economy from a linear VAR with a non-linear welfare function and obtain analytic solutions for optimal policy. The variables...

A consequence of melting Arctic ice caps is the commercial viability of the Northern Sea Route, connecting North-East Asia with North-Western Europe. This will represent a sizeable reduction in shipping distances and a decrease in the average transportation days by around one-third compared to...

Consolidation of the tax base in the European Union is expected to curve compliance costs and reduce profit shifting. A number of proposals for consolidation from the European Commission are simulated with the applied general equilibrium model CORTAX. We show that the benefits from...

Recent trade-in-tasks models suggest that relative low-skill wages may increase when low-skill tasks are offshored. However, using extensive numerical simulations of these models we find that wage inequality is increasing for almost all endowment combinations when we use a broad range of...

Foreign Direct Investment (FDI) flows have increased substantially in the past two decades. These developments have motivated the appearance of a large number of empirical papers that test the expected benefits that FDI inflows are assumed to bring to the host countries. We survey the recent...