Rational Partisan Theory with fiscal policy and an independent central bank

The empirical evidence testing the validity of the rational partisan theory (RPT) has been mixed. In this article, we argue that the inclusion of other macroeconomic policies and the presence of an independent central bank can partly contribute to explain this inconclusiveness. This article expands Alesina s (1987) RPT model to include an extra policy and an independent central bank. With these extensions, the implications of RPT are altered signi ficantly. In particular, when the central bank is more concerned about output than public spending (an assumption made by many papers in this literature), then the direct relationship between in flation and output derived in Alesina (1987) never holds. Keywords: central bank, conservativeness, political uncertainty. JEL Classi fication: E58, E63.

Impacte econòmic de la reforma de l'avinguda Diagonal

Quina és la primera imatge que et ve al cap quan sents parlar de l’avinguda Diagonal?Segurament és la d’una avinguda llarga i sovint altament congestionada pel trànsit.No obstant, fa seixanta anys l’avinguda Diagonal complia unes funcions ben diferents a les que compleix avui en dia. Tot just acabava de finalitzar la Guerra Civil i la gent necessitava diversió, i per això l’avinguda acollia sales de festa, bars i cafès, els grans premis d’automoció de l’època i era una mena d’autopista per travessar la ciutat de manera ràpida. Tot això es ben diferent de la Diagonal actual on el trànsit és molt dens, i la congestió i el desordre estan presents al nostre cap quan pensem en aquesta columna vertebral de l’Eixample.Res a veure amb la Diagonal del futur, on els vianants tindran un espai molt generósper poder passejar, comprar o fer una copa a la terrassa d’un bar tranquil·lament sense haver d’esquivar les bicicletes que, per cert, també tindran un espai reservat i bendelimitat. I una reducció del trànsit molt important, per tal de tenir una avingudamoderna, neta, cosmopolita i al nivell de la ciutat de Barcelona.I, com veurem a continuació, aquesta reforma es mourà al voltant d’un polèmic i controvertit punt: la unió dels dos tramvies de la ciutat a través de l’avinguda Diagonal.

Modern Perspectives on Fiscal Stabilization Policies

The present paper describes recent research on two central themes of Keynes General Theory: (i) the social waste associated with recessions, and (ii) the effectiveness of fiscal policy as a stabilization tool. The paper also discusses some evidence on the extent to which fiscal policy has been used as a stabilizing tool in industrial economies over the past two decades.

The Sustainable Debts of Philip II: A Reconstruction of Spain's Fiscal Position, 1560-1598

The defaults of Philip II have attained mythical status as the origin of sovereign debt crises. Four times during his reign the king failed to honor his debts and had to renegotiate borrowing contracts. In this paper, we reassess the fiscal position of Habsburg Spain. New archival evidence allows us to derive comprehensive estimates of debt and revenue. These show that primary surpluses were sufficient to make the king's debt sustainable in most scenarios. Spain's debt burden was manageable up to the 1580s, and its fiscal position only deteriorated for good after the defeat of the "Invincible Armada." We also estimate fiscal policy reaction functions, and show that Spain under the Habsburgs was at least as "responsible" as the US in the 20th century or as Britain in the 18th century. Our results suggest that the outcome of uncertain events such as wars may influence on a history of default more than strict adherence to fiscal rules.

On optimal monetary and fiscal policy interactions in open economies

This paper studies monetary and fiscal policy interactions in a two country model, where taxes on firms sales are optimally chosen and the monetary policy is set cooperatively.It turns out that in a two country setting non-cooperative fiscal policy makers have an incentive to change taxes on sales depending on shocks realizations in order to reduce output production. Therefore whether the fiscal policy is set cooperatively or not matters for optimal monetary policy decisions. Indeed, as already shown in the literature, the cooperative monetary policy maker implements the flexible price allocation only when special conditions on the value of the distortions underlying the economy are met. However, if non-cooperative fiscal policy makers set the taxes on firms sales depending on shocks realizations, these conditions cannot be satisfied; conversely, when fiscal policy is cooperative, these conditions are fulfilled. We conclude that whether implementing the flexible price allocation is optimal or not depends on the fiscal policy regime.

Fiscal policy, pricing frictions and monetary accommodation

We investigate the theoretical conditions for effectiveness of government consumptionexpenditure expansions using US, Euro area and UK data. Fiscal expansions taking placewhen monetary policy is accommodative lead to large output multipliers in normal times.The 2009-2010 packages need not produce significant output multipliers, may havemoderate debt effects, and only generate temporary inflation. Expenditure expansionsaccompanied by deficit/debt consolidations schemes may lead to short run output gains buttheir success depends on how monetary policy and expectations behave. Trade opennessand the cyclicality of the labor wedge explain cross-country differences in the magnitude ofthe multipliers.