Optimal Fiscal Policy and Sovereign Debt: A signaling model

Guido Sandler

No 488, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: This paper analyzes the optimal use of fiscal policy and sovereign debt repayment as signals in an asymmetric information environment. It shows that the presence of government private information could turn an optimal full-information countercyclical fiscal policy into a pro-cyclical one that exacerbates the cycle. This may occur if the effect of aggregate shocks on the signaling properties of fiscal policy is not symmetric across states. An alternative channel for this result could be the impact of the cycle on the government borrowing constraints. These two mechanisms provide a rational for the observed pro-cyclicality in fiscal policy in emerging countries where both private information and sovereign borrowing constraints are more pervasive than in developed economies

Keywords: Fiscal Policy; Sovereign Debt; Taxation; asymmetric information (search for similar items in EconPapers)
JEL-codes: E62 F34 F41 (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:sed006:488

Access Statistics for this paper

More papers in 2006 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().