We consider an economy where competing political parties alternate in office. Due to rent-seeking motives, incumbents have an incentive to set public expenditures above the socially optimum level. Parties cannot commit to future policies, but they can forge a political compromise where each...

We explore the dynamics of public debt in the presence of political shocks, in the form of shocks to preferences for public spending. Under commitment, optimal stabilization is obtained by combining an inflation target that is contingent on the political shock with a debt target that forces the...

We investigate how the ability of the government to depart from budget balance and issue debt expands the set of equilibria that can be supported using lump-sum tax-transfer instruments. We show how this depends on the restrictions that exist on the capacity to tax and make transfer payments,...

In the coming decades, the share of people in working age will fall significantly in most developed countries. According to optimal taxation theory, public debts should be reduced before the baby-boom generation retires. I find that if debts are instead maintained at the current levels, welfare...

I survey the influence of Grossman and Hart's (1986) seminal paper in the field of International Trade. I discuss the implementation of the theory in open-economy environments and its implications for the international organization of production and the structure of international trade flows. I...

This paper presents evidence on the effect of countries proximity in regulation on bilateral FDI flows. By exploiting the OECD International Direct Investment Statistics and data on nationwide regulation levels, we find a significant negative effect of the absolute value of the difference...

We examine whether Brazilian sovereign spreads of over 20% in 2002 could be due to contagion from Argentina or to domestic politics, or both. Treating unilateral debt restructuring as a policy variable gives rise to the possibility of self-fulfilling crisis, which can be triggered by contagion....

In terms of macroeconomic performance, the Eurozone’s first decade is a story of successful inflation-targeting by the ECB for the common currency area as a whole combined with the persistence of real exchange rate and current account disequilibria at member country level. According to the...

Central banks’ economic and political importance has grown in advanced economies since the start of the Great Financial Crisis in 2007. An unwillingness or inability of governments to use countercyclical fiscal policy has made monetary policy the only stabilization tool in town. However, much...

This paper illustrates some of the most important insights of the literature on international fiscal and monetary policy coordination. It notes that the analysis of international policy interactions is enriched by taking the incentives in the domestic policy process into account. These...