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Financial globalization and the raising of public debt

Author

Listed:
  • 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.

Suggested Citation

  • Vincenzo Quadrini & Eva de Francisco & Marina Azzimonti, 2011. "Financial globalization and the raising of public debt," 2011 Meeting Papers 575, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:575
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    References listed on IDEAS

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    1. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," American Economic Review, American Economic Association, pages 358-393.
    2. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2012. "Rotten Parents and Disciplined Children: A Politico‐Economic Theory of Public Expenditure and Debt," Econometrica, Econometric Society, pages 2785-2803.
    3. Caballero, Ricardo J. & Yared, Pierre, 2010. "Future rent-seeking and current public savings," Journal of International Economics, Elsevier, pages 124-136.
    4. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters,in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
    5. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, pages 201-236.
    6. Stefania Albanesi & Christopher Sleet, 2006. "Dynamic Optimal Taxation with Private Information," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 1-30.
    7. Mikhail Golosov & Narayana Kocherlakota & Aleh Tsyvinski, 2003. "Optimal Indirect and Capital Taxation," Review of Economic Studies, Oxford University Press, pages 569-587.
    8. George-Marios Angeletos & Vasia Panousi, 2011. "Financial Integration, Entrepreneurial Risk and Global Imbalances," NBER Working Papers 16761, National Bureau of Economic Research, Inc.
    9. Ilzetzki, Ethan, 2011. "Rent-seeking distortions and fiscal procyclicality," Journal of Development Economics, Elsevier, pages 30-46.
    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.
    11. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, pages 1676-1706.
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    Cited by:

    1. Martin, Fernando M., 2015. "Debt, inflation and central bank independence," European Economic Review, Elsevier, pages 129-150.

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