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Fiscal policy and the output costs of sovereign default

Gómez-Oliveros Durán Leyre, Stefan Niemann and Pichler Paul
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Gómez-Oliveros Durán Leyre: European Commission, Brussels, Belgium
Pichler Paul: University of Vienna, Department of Economics, Vienna, Austria

The B.E. Journal of Macroeconomics, 2020, vol. 20, issue 1, 11

Abstract: We introduce fiscal policy into a sovereign debt model with endogenous default costs and examine the implications for the determination of the output costs of default. We find that the quantitative properties of the output costs of default, and their dependence on primitives such as the elasticity of labor supply, are distinctly different depending on the margin of fiscal adjustment. The consideration of fiscal policy thus has potentially important implications for the quantitative properties of models of sovereign debt and default.

Keywords: fiscal policy; output costs of default; sovereign debt (search for similar items in EconPapers)
JEL-codes: E62 F34 H63 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1515/bejm-2017-0236

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