Fiscal uncertainty with donor herding and domestic debt crisis
This 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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- Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
- Daniel, Betty C, 1989. "One-Sided Uncertainty about Future Fiscal Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(2), pages 176-89, May.
- A. Javier Hamann & Ales Bulir, 2006.
"Volatility of Development Aid; From the Frying Pan Into the Fire?,"
IMF Working Papers
06/65, International Monetary Fund.
- Bulír, Ales & Hamann, A. Javier, 2008. "Volatility of Development Aid: From the Frying Pan into the Fire?," World Development, Elsevier, vol. 36(10), pages 2048-2066, October.
- Dornbusch, Rudiger, 1987.
"Exchange Rate Economics: 1986,"
Royal Economic Society, vol. 97(385), pages 1-18, March.
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
- Ephraim W. Chirwa & Montfort Mlachila & Yohane Anthony Khamfula, 2006.
"Donor Herding and Domestic Debt Crisis,"
IMF Working Papers
06/109, International Monetary Fund.
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