Year: 2019
Type: article
Abstract: We introduce fiscal policy into a sovereign debt model with endogenous default costs and examine the implications for the determination of the output costs of default. We find that the quantitative properties of the output costs of default, and their dependence on primitives such as the elasticity of labor supply, are distinctly different depending on the margin of fiscal adjustment. The consideration of fiscal policy thus has potentially important implications for the quantitative properties of models of sovereign debt and default.
Authors: Leyre Gómez-Oliveros Durán, Stefan Niemann, Paul Pichler
Institutions: European Commission, University of Essex, University of Vienna
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
Funder: European Commission
OpenAlex ID: W2990603731