creator: Lambertini, Luisa
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Technological Change and Public Financing of Education
description- – We study investment in education in an overlapping generation model with altruism where credit market imperfections ration borrowing and cause persistent underinvestment in human capital. We characterize the optimal government policy and the policy that would emerge under majority voting in response to a technological change that raises the returns to education. The optimal government policy consists in a transfer of resources from future to current generations to finance investment in education and an increase in consumption for the current old generation. The policy chosen under majority voting accomplishes a generational transfer only if a majority of individuals are credit constrained. We consider two policy instruments: a labor income tax and an education subsidy. Current voters prefer a reduction in the current income tax rate to an education subsidy, as the former can finance an increase in their consumption.
- – WP579
- – 2001-11-01
- – application/pdf
Volatility and Sovereign Default
description- – The history of international lending shows that countries default on external debt when their economies experience a downturn. This paper presents a theoretical model of international lending that is consistent with this evidence. In this model, output is stochastic, international capital markets are incomplete because borrowing can only occur via issuing bonds, and borrowers cannot commit to repay loans. Self-fulfilling and solvency debt crises arise when borrowers experience low output realizations; moreover, when lenders are atomistic, self-fulfilling crises may arise for debt levels that do not cause default when lenders are non-atomistic. Alternative reforms to eliminate liquidity crises are analyzed. An international lender of last resort can eliminate liquidity crises provided it implements full bailouts via purchasing debt at its market price.
- – WP577
- – 2001-10-01
- – application/pdf
Fiscal Incentives and Industrial Agglomeration
description- – In the transitional phase towards full economic integration, European countries have the possibility of re-shaping the continental geography of specialization. We use an Economic Geography model of industrial agglomeration to show how fiscal incentives can be critical in this phase. Differently from other work we concentrate on the role of indirect taxation, and sector specific state-aid, still important in the EU but little studied. While it is obvious that tax incentives could be used to attract some industries, it is not obvious that, in a general equilibrium analysis, such use of taxes is welfare improving. In the paper, we show that the optimal policy is to levy asymmetric taxes on the two sectors only during the phase of intermediate transport costs, when such a measure induces welfare improving agglomerations.
- – WP580
- – 2001-04-01
- – application/pdf
Exchange Rates and Fiscal Adjustments: Evidence from the OECD and Implications for EMU
description- – We study monetary and exchange-rate policies around successful and unsuccessful fiscal adjustments and find that successful adjustments are preceded by large nominal exchange rate depreciations, whereas unsuccessful adjustments are preceded by appreciations. Pre-adjustment depreciation is a significant and quantitatively important predictor of the success of adjustment. Our results are robust to the inclusion of other determinants of the success of adjustment and to the definition of the depreciation period, of the persistence of the adjustment, and of the exchange rate. Monetary policy does not affect the success of fiscal adjustments. This result is confirmed when the sample is divided into countries that follow a fixed exchange rate policy and those that do not: for both cases it is exchange rate depreciations that affect the likelihood of success. Our results suggest that the adoption of a single currency will make successful fiscal adjustments more difficult to attain within EMU.
- – WP576
- – 2003-08-01
- – application/pdf
Are Budget Deficits Used Strategically?
description- – This paper tests empirically the strategic explanation of budget deficits suggested by Tabellini and Alesina and Persson and Svensson. Tabellini and Alesina suggest that governments with di erent political orientation provide different public goods. The model predicts that: a) public good provision follows a political pattern; b) the incumbent that anticipates her defeat at the next election runs budget deficits to tie the hands of the future government. Persson and Svensson suggest that liberal governments prefer more public good provision than conservative ones. The model predicts that: a) the conservative (liberal) incumbent that anticipates her defeat at the next election runs budget deficits (surpluses); b) budget imbalances have a political color. Using U.S. and pooled data for sixteen OECD countries, we find little evidence that the incumbent's probability of being voted out of office explains budget deficits, that the provision of public goods follows a political pattern or that budget imbalances have a political color.
- – WP578
- – 2003-06-01
- – application/pdf
Interactions of Commitment and Discretion in Monetary and Fiscal Policies
description- – We consider monetary-fiscal interactions when the monetary authority is more conservative than the fiscal. With both policies discretionary, (1) Nash equilibrium yields lower output and higher price than the ideal points of both authorities, (2) of the two leadership possibilities, fiscal leadership is generally better. With fiscal discretion, monetary commitment yields the same outcome as discretionary monetary leadership for all realizations of shocks. But fiscal commitment is not similarly negated by monetary discretion. Second-best outcomes require either joint commitment, or identical targets for both authorities -- output socially optimal and price level appropriately conservative -- or complete separation of tasks.
- – WP575
- – 2003-06-01
- – application/pdf
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