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Financial globalization and the raising of public debt

  • Marina Azzimonti

    (Federal Reserve Bank of Philadelphia)

  • Eva de Francisco

    ()

    (Department of Economics, Towson University)

  • Vincenzo Quadrini

    (Department of Economics, University of Southern California)

During the last three decades the stock of government debt has increased in most developed countries. During the same period inter- national capital markets have been liberalized. In this paper we de- velop 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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File URL: http://webapps.towson.edu/cbe/economics/workingpapers/2011-03.pdf
File Function: First version, 2011
Download Restriction: no

Paper provided by Towson University, Department of Economics in its series Working Papers with number 2011-03.

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Length: 33 pages
Date of creation: Mar 2011
Date of revision: Mar 2011
Handle: RePEc:tow:wpaper:2011-03
Contact details of provider: Postal:
Towson, Maryland 21252-0001

Phone: 410-704-2959
Fax: 410-704-3424
Web page: http://www.towson.edu/cbe/departments/economics/

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
  2. Mikhail Golosov & Narayana R. Kocherlakota & Aleh Tsyvinski, 2001. "Optimal indirect and capital taxation," Working Papers 615, Federal Reserve Bank of Minneapolis.
  3. Song, Zheng Michael & Storesletten, Kjetil & Zilibotti, Fabrizio, 2012. "Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt," CEPR Discussion Papers 8738, C.E.P.R. Discussion Papers.
  4. Stefania Albanesi & Christopher Sleet, 2004. "Dynamic optimal taxation with private information," Discussion Paper / Institute for Empirical Macroeconomics 140, Federal Reserve Bank of Minneapolis.
  5. Caballero, Ricardo J & Farhi, Emmanuel & Gourinchas, Pierre-Olivier, 2006. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," Center for International and Development Economics Research, Working Paper Series qt7xc0g8mm, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  6. Marco Battaglini & Stephen Coate, 2006. "A Dynamic Theory of Public Spending, Taxation and Debt," NajEcon Working Paper Reviews 321307000000000026, www.najecon.org.
  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 J. & Yared, Pierre, 2010. "Future rent-seeking and current public savings," Journal of International Economics, Elsevier, vol. 82(2), pages 124-136, November.
  9. Ilzetzki, Ethan, 2011. "Rent-seeking distortions and fiscal procyclicality," Journal of Development Economics, Elsevier, vol. 96(1), pages 30-46, September.
  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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