Public Debt, Fiscal Policy and Electoral Cycles: A Theoretical Approach / Disentangling economic and financial integration: implications for international risk-sharing

Lun, 21/03/2022 - 13:00 / 14:00

403, Viale Romania

Speaker: Ivan Gufler , Siavash Mohades Forooshani , Luiss

Speaker: Siavash Mohades Forooshani

Title: Public Debt, Fiscal Policy and Electoral Cycles: A Theoretical Approach

Abstract:

One of the main issues of the democratic Western economies is the accumulation of debt in recent decades. This paper investigates the possibility that electoral uncertainty in a democratic political system can lead to debt accumulation through the lenses of a general equilibrium model. Applying the representative agent modelling usual techniques on the historical findings and studies of Anthony Downs, this paper introduces an objective function for the government, which generates political frontiers as a product of government trying to find an optimal combination of its votes and welfare given its budget constraint. The main contribution of this paper is an endogenous policy function for the government expenditure and the significant role that policy uncertainty plays in debt accumulation due to the tendency of the incumbent governors to remain in office. I argue that this approach sheds light on the behaviour of governments in the macroeconomic models by endogenising their behaviour and helping understand from where the government expenditure mainly originates.

 

Speaker: Ivan Gufler

Title: Disentangling economic and financial integration: implications for international risk-sharing

Abstract:

The declining degree of international capital markets segmentation has been shown in the international business cycle (IBC) literature to be associated with improved consumption risk sharing. In the data this should be reflected in a relatively low consumption volatility. We build measures of economic and financial integration and test whether improvements in international consumption risk sharing are driven by a common cash flow dynamic (economic integration) or by a common risk pricing dynamic (financial integration). Rising financial (economic) integration is found to improve (undermine) international consumption smoothing, in particular across emerging economies.