The role of institutions in reputation models of sovereign debt

Article Abstract:

A model showing how varied assumptions of legal institutions cause different results on the ability of reputation to sustain debt is presented. The model considers two countries, one with one-period-lived agents called bankers and another with a single long-lived agent called the goverment. Results showed that a government obtains enduring benefits in cases where bankers can default but acquires only transient benefits when bankers are pressured to honor contracts. Extensions of the model to a Bayesian model proved that the results are robust.

Default (Finance), Sovereign debt market

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The nonequivalence between deficits and distortionary taxation

Article Abstract:

The Ricardian theroem on lump-sum taxation introduced in 1974 has focused on differences between current deficits and taxes equivalents rather than distortionary taxation. The research focuses on the consequences of distortionary income taxation delays. Results show that deficit finance changes the time path of the net wages and interest rates, provoking economic development in the short-term. Deficit finance results in higher tax rates in the long-term.

Research, Deficit financing, Deficit spending

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On the irrelevance of government debt when taxes are distortionary

Article Abstract:

A government that raises funds by levying distortionary taxes is considered. Given any debt path, the government can adjust its tax policy without affecting equilibrium allocation or prices.

Evaluation, Tax policy, Taxation, Debt management

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