EconPapers    
Economics at your fingertips  
 

Optimal fiscal policy and sovereign debt crises

Stefan Niemann and Paul Pichler ()

Review of Economic Dynamics, 2020, vol. 37, 234-254

Abstract: This paper studies how sovereign risk – both fundamental and self-fulfilling – shapes the cyclical behavior of optimal fiscal policy. We develop a model with endogenous default costs where market sentiment can induce belief-driven debt rollover crises. Optimal taxes and public spending are generally procyclical, but the incidence of rollover risk gives rise to infrequent episodes of severely countercyclical fiscal activity. These endogenous regime changes are associated with pronounced countercyclical changes in the level of debt. Debt buildups are triggered already by relatively mild recessions, but successful fiscal consolidations occur only in exceptionally good times. (Copyright: Elsevier)

Keywords: Fiscal policy; Sovereign debt; Rollover crises; Regime switches (search for similar items in EconPapers)
JEL-codes: E62 F34 H63 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2020.02.003
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Optimal fiscal policy and sovereign debt crises" (2020) Downloads
Working Paper: Online Appendix to "Optimal fiscal policy and sovereign debt crises" (2020) Downloads
Working Paper: Optimal fiscal policy and sovereign debt crises (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:18-382

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2020.02.003

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2020-10-10
Handle: RePEc:red:issued:18-382