Fiscal Discipline and Defaults

Gonzalo F. de-Córdoba (), Pau Pujolas and Jose Torres ()
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Gonzalo F. de-Córdoba: Departamento de Teoría e Historia Económica, Universidad de Málaga
Authors registered in the RePEc Author Service: Gonzalo Fernandez-de-Cordoba

No 2016-05, Working Papers from Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center

Abstract: We develop a general equilibrium model with a detailed structure of government expenditures and revenues, calibrate it to the Greek and German economies, and use it study the link between scal discipline and defaults. We show that even if the Greek government had entered the Great Recession with the same structure of government expenditures and revenues as Germany, but with the Greek level of debt, it would still have chosen to default when facing a high interest rate. Alternatively, if the Greek government had kept its structure of government expenditures and revenues, but managed to decrease its debt to the level of Germany, it would not have defaulted. The primacy of debt over the structure of government expenditures and revenues in default decisions is further emphasized by our ndings that even if Germany, with a low level of debt, faced the same high interest rate as Greece did, it would still not have defaulted.

Keywords: Dynamic General Equilibrium Model; Fiscal Policy; Government Expenditure; Government Default (search for similar items in EconPapers)
JEL-codes: H5 H6 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2016-11
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://theeconomics.uma.es/malagawpseries/Papers/METCwp2016-5.pdf First version, 2016 (application/pdf)

Related works:
Journal Article: Fiscal Discipline and Defaults (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:mal:wpaper:2016-5

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