Fiscal uncertainty with donor herding and domestic debt crisis
AbstractThis study attempts to analyse how uncertainty about future government spending affects the representative individual’s lifetime utility by using a discrete inter-temporal optimizing model. Intuitively, the study shows that the overall effect of a highly positive domestic-debt repayment gap is such that the expected government spending for the next period will go down. The implication of the reduction in government spending due to uncertainty about future debt servicing is that the output and the corresponding investment for the next period will be expected to go down. This outcome is further reinforced by the higher taxes imposed on consumers in an attempt to minimise the next period’s domestic-debt repayment gap.
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Bibliographic InfoPaper provided by Stellenbosch University, Department of Economics in its series Working Papers with number 07/2006.
Date of creation: 2006
Date of revision:
Donor herding behavior; domestic debt crisis; fiscal uncertainty; domestic-debt; repayment gap; government spending;
Find related papers by JEL classification:
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- F3 - International Economics - - International Finance
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