Found 468 article(s) in category 'Fiscal Policy'

Credit Constraints, Cyclical Fiscal Policy and Industry Growth

Credit Constraints, Cyclical Fiscal Policy and Industry Growth. Philippe Aghion, March 2009, Paper. “This paper evaluates whether the cyclical pattern of fiscal policy can affect growth. We first build a simple endogenous growth model where entrepreneurs can invest either in short-run projects or in long-term growth enhancing projects. Long-term projects involve a liquidity risk which credit constrained firms try to overcome by borrowing on the basis of their short-run profits. By increasing firms’ market size in recessions, a countercyclical fiscal policy will boost investment in productivity-enhancing long-term…” Link

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When Does Domestic Saving Matter for Economic Growth?

When Does Domestic Saving Matter for Economic Growth? Philippe Aghion and Diego Comin, January 4, 2009, Paper. “Can a country grow faster by saving more? We address this question both theoretically and empirically. In our theoretical model, growth results from innovations that allow local sectors to catch up with frontier technology. In poor countries, catching up requires the cooperation of a foreign investor who is familiar with the frontier technology and a domestic entrepreneur who is familiar with local conditions…” Link

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Comment: Policymaking Insights from Behavioral Economics

Comment: Policymaking Insights from Behavioral Economics. David Laibson, 2009, Opinion. “Annamaria Lusardi’s paper is a wonderful summary of what is known about financial literacy and financial decisionmaking. I strongly recommend that anyone who is thinking about household savings behavior or savings policy read her paper. It emphasizes the recent findings that Lusardi and her coauthors have generated: financial illiteracy is an important contributor to suboptimal investment choicesMy comments cover four topics. First, I discuss the classical economic argument that economic choices might be sophisticated…” Link

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The Political Economy of Tax Policy

The Political Economy of Tax Policy, James E. Alt, 2009, Book Chapter, This chapter reviews major changes in British tax-setting institutions in the past thirty years and highlights four key points about the politics of tax policy, which are summarized below. The chapter also makes policy recommendations, such as for improving scrutiny and parliamentary accountability; these are also summarized belowLink

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Investment Cycles and Sovereign Debt Overhang

Investment Cycles and Sovereign Debt Overhang. Aguiar, Mark, Manuel Amador, and Gita Gopinath, 2009, Paper. “We characterize optimal taxation of foreign capital and optimal sovereign debt policy in a small open economy where the government cannot commit to policy, seeks to insure a risk-averse domestic constituency, and is more impatient than the market. Optimal policy generates long-run cycles in both sovereign debt and foreign direct investment in an environment in which the first best capital stock is a constant. The expected tax on capital endogenously varies with the state of the economy, and investment is distorted…” Link


This Bailout Doesn’t Pay Dividends

This Bailout Doesn’t Pay Dividends. Jeremy Stein, David Scharfstein, October 21, 2008, Article. “On Oct. 13, the chief executives of nine large American banks were called to a meeting at the Treasury Department. At the meeting, Secretary Henry Paulson offered them $125 billion from the federal government in exchange for shares of preferred stock. The chief executives accepted his terms. In some accounts of the meeting, Secretary Paulson is described as playing the role of the Godfather, making the banks an offer they could not refuse. But in one important respect, he was more Santa Claus than…” (May require user account or purchase) Link

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The $700 Billion Question

The $700 Billion Question. Jeremy Stein, September 23, 2008, Op-Ed. “Henry Paulson, the Treasury secretary, has opened the government checkbook and is poised to spend $700 billion to end the financial crisis. What comes next depends on the precise mission and operating powers he and Congress assign the new Treasury agency that will oversee the bailout. We see four broad possibilities. First, the agency could act as a deep-pocketed private investor that sees a bargain-buying opportunity – Warren Buffet on steroids. This strategy makes sense if one believes that the crises has caused the prices…” (May require user account or purchase) Link

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WHY IS FISCAL POLICY OFTEN PROCYCLICAL? Alberto Alesina, Filipe R. Campante, September 2008, Paper. “Fiscal policy is procyclical in many developing countries. We explain this policy failure with a political agency problem. Procyclicality is driven by voters who seek to “starve the Leviathan” to reduce political rents. Voters observe the state of the economy but not the rents appropriated by corrupt governments. When they observe a boom, voters optimally demand more public goods or lower taxes, and this induces a procyclical bias in fiscal policy. The empirical evidence is consistent with this explanation…” Link

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In search of the chains that hold Brazil back

In search of the chains that hold Brazil back, Ricardo Hausmann, September 2008, Paper, This paper performs a Growth Diagnostic for Brazil. It shows that many aspects of the Brazilian economy have been improving including the macro picture, educational progress and the external front. Moreover, Brazil has many productive possibilities and high-return investments. Yet growth is hampered because of a relatively old-fashioned problem that has been solved in many other countries in the region: creating a financially viable state that does not over-borrow, over-tax or under-invest. We show that domestic saving is the binding constraint on growth and that it has a fiscal cause. Although things are trending in the right direction, the challenge is to exploit the current good times to create the fiscal basis for a sustained growth acceleration. Link

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The growing current account surpluses in East Asia: the effect of dark matter assets

The growing current account surpluses in East Asia: the effect of dark matter assets. Ricardo Hausmann, June 12, 2008, Paper. “In a series of papers we have developed the notion that net foreign assets could be better approximated by capitalizing the net investment income line of the balance of payments statistics. Hidden assets or changes in financial costs may change the net return of net foreign assets even when the valuation of assets remains unchanged. By capitalizing the net investment income a more realistic picture emerges on the true burden or return of net foreign assets. This paper estimates external positions for East Asian economies…” Link

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