Institutional Affiliation: Columbia University
|Fiscal Policy in Latin America|
in NBER Macroeconomics Annual 1997, Volume 12, Ben S. Bernanke and Julio J. Rotemberg
|Optimal Tax and Debt Policy with Endogenously Imperfect Creditworthiness|
with , : w5558
This paper shows that the patterns of optimal tax rates and borrowing in the presence of endogenous borrowing constraints differ considerably from the patterns observed with fully integrated capital markets. We study a developing country characterized by a costly tax collection. Its access to the international credit market is determined by the efficiency of the tax system and the relative bargaining power of creditors. Partial defaults induce a `burden shifting' from bad to good states of nature, reducing the cost of borrowing, implying that a switch from no default to a partial default regime is associated with a borrowing boom. The switch to a partial default regime is associated with financial fragility, where small adverse changes in fundamentals lead to a large accumulation of de...
Published: Joshua Aizenman, Michael Gavin, Ricardo Hausmann. "Optimal tax and debt policy with endogenously imperfect creditworthiness," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 9(4), pages 367-395, December 2000. citation courtesy of