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Financial globalization and the raising of public debt

  • Vincenzo Quadrini

    (University of Southern California)

  • Eva de Francisco

    (Towson University)

  • Marina Azzimonti

    (FRB of Philadelphia)

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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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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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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  1. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2003. "Optimal Indirect and Capital Taxation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 569-587.
  2. Albanesi, Stefania & Sleet, Christopher, 2003. "Dynamic Optimal Taxation with Private Information," CEPR Discussion Papers 4006, C.E.P.R. Discussion Papers.
  3. Stephen Coate & Marco Battaglini, 2007. "A Dynamic Theory of Public Spending, Taxation and Debt," 2007 Meeting Papers 573, Society for Economic Dynamics.
  4. Song, Zheng & Storesletten, Kjetil & Zilibotti, Fabrizio, 2007. "Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt," Memorandum 05/2008, Oslo University, Department of Economics.
  5. Ilzetzki, Ethan, 2006. "Rent seeing distortions and fiscal procyclicality," MPRA Paper 8726, University Library of Munich, Germany, revised 01 Dec 2007.
  6. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "From Financial Crash to Debt Crisis," NBER Working Papers 15795, National Bureau of Economic Research, Inc.
  7. 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.
  8. Caballero, Ricardo & Farhi, Emmanuel & Gourinchas, Pierre-Olivier, 2006. "An Equilibrium Model of 'Global Imbalances' and Low Interest Rates," CEPR Discussion Papers 5573, C.E.P.R. Discussion Papers.
  9. Caballero, Ricardo J. & Yared, Pierre, 2010. "Future rent-seeking and current public savings," Journal of International Economics, Elsevier, vol. 82(2), pages 124-136, November.
  10. Azzimonti, Marina & de Francisco, Eva & Krusell, Per, 2008. "Production subsidies and redistribution," Journal of Economic Theory, Elsevier, vol. 142(1), pages 73-99, September.
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