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Financial globalization and the raising of public debt

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  • Vincenzo Quadrini

    (University of Southern California)

  • Eva de Francisco

    (Towson University)

  • Marina Azzimonti

    (FRB of Philadelphia)

Abstract

During the last three decades the stock of government debt has increased in most developed countries. During the same period international capital markets have been liberalized. In this paper we develop a two-country political economy model with incomplete markets and endogenous government borrowing and show that countries choose higher levels of public debt when nancial markets are internationally integrated.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 575.

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Date of creation: 2011
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Handle: RePEc:red:sed011:575

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  1. Marco Battaglini & Steve Coate, 2006. "A Dynamic Theory of Public Spending, Taxation and Debt," Levine's Bibliography 122247000000001094, UCLA Department of Economics.
  2. Caballero, Ricardo & Farhi, Emmanuel & Gourinchas, Pierre-Olivier, 2006. "An Equilibrium Model of 'Global Imbalances' and Low Interest Rates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5573, C.E.P.R. Discussion Papers.
  3. Stefania Albanesi & Christopher Sleet, 2006. "Dynamic Optimal Taxation with Private Information," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 1-30.
  4. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2001. "Optimal indirect and capital taxation," Staff Report, Federal Reserve Bank of Minneapolis 293, Federal Reserve Bank of Minneapolis.
  5. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2007. "Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt," 2007 Meeting Papers, Society for Economic Dynamics 685, Society for Economic Dynamics.
  6. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  7. Caballero, Ricardo J. & Yared, Pierre, 2010. "Future rent-seeking and current public savings," Journal of International Economics, Elsevier, Elsevier, vol. 82(2), pages 124-136, November.
  8. Azzimonti, Marina & de Francisco, Eva & Krusell, Per, 2008. "Production subsidies and redistribution," Journal of Economic Theory, Elsevier, Elsevier, vol. 142(1), pages 73-99, September.
  9. Emannauel Farhi & Ivan Werning, 2006. "Capital Taxation," 2006 Meeting Papers, Society for Economic Dynamics 455, Society for Economic Dynamics.
  10. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, American Economic Association, vol. 101(5), pages 1676-1706, August.
  11. Ilzetzki, Ethan, 2006. "Rent seeing distortions and fiscal procyclicality," MPRA Paper 8726, University Library of Munich, Germany, revised 01 Dec 2007.
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  1. Can DSGE models describe political cohesion?
    by Jason Rave in Macro Matters on 2012-05-28 21:41:00
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Cited by:
  1. Fernando M. Martin, 2013. "Debt, inflation and central bank independence," Working Papers, Federal Reserve Bank of St. Louis 2013-017, Federal Reserve Bank of St. Louis.

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